Fir Tree’s Big Tobacco Buy And Other Major Moves Heading Into 2017

CDK Global Inc (NASDAQ:CDK)

– Shares Held By Fir Tree (as of December 31): 3.79 Million

– Value of Holding (as of December 31): $226.51 Million

With Fir Tree lowering its holding in CDK Global Inc (NASDAQ:CDK) by 27% during the fourth quarter, the company dropped from the top spot down to second spot in the fund’s 13F portfolio as of the end of December. Fir Tree initiated a stake in CDK Global Inc (NASDAQ:CDK) during the fourth quarter of 2014 when the company was spun-off from Automatic Data Processing (NASDAQ:ADP). For a long time since initiating that stake, CDK’s stock went nowhere. However, it has enjoyed a massive bull run in the last year, appreciating by 54% during that time, which might have prompted Fir Tree to book some profits. For its most recent quarter, the company reported EPS of $0.64 on revenue of $547.8 million, beating analyst estimates by $0.08 and $2.06 million, respectively. Despite the earnings and revenue beat, some analysts consider CDK’s stock to be too expensive at current levels and are projecting a 20-30% drop in the coming quarters.

Reynolds American, Inc. (NYSE:RAI)

– Shares Held By Fir Tree (as of December 31): 4.3 Million

– Value of Holding (as of December 31): $241.30 Million

Reynolds American, Inc. (NYSE:RAI) made its debut in Fir Tree’s portfolio during the fourth quarter and ended up becoming the fund’s largest equity holding by the end of that period. The tobacco major saw its stock spike in October after it revealed that it received a non-binding proposal from British American Tobacco (NYSEMKT:BTI) to acquire the remaining 57.8% stake in the company which it didn’t already own. Although Reynolds American, Inc. (NYSE:RAI) refused the initial offer of $47 billion made by British American Tobacco, on January 17, it agreed to an enhanced deal, after the latter increased its offer to $49.4 billion. Under the terms of the deal, Reynolds’ shareholders will receive $29.44 in cash and 0.5260 BTI shares for each RAI share. On February 13, analysts at RBC Capital Markets downgraded Reynolds’ stock to ‘Sector Perform’ from ‘Outperform’, citing valuation concerns, but upped their price target on it to $60 from $54, which is nearly the same level at which the tobacco stock is currently trading at.

Disclosure: None