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

The last two years have been dismal for Fir Tree, the hedge fund founded by Jeffrey Tannenbaum. Launched in 1994, Fir Tree grew from strength to strength over the next two decades, becoming one of the biggest activist hedge funds on the Street with over $10 billion in assets under management and clients including several reputed endowments and pension funds. However, the year 2015 changed all that. Not only did the fund lose its co-head and Managing Partner Andrew Fredman that year, but it also saw its AUM plunge heavily.

Fir Tree invests in both equities and debt, but it’s better known for its debt-fund operations. This is evident from the fund’s 13F portfolio, which was worth $2.48 billion at the end of December, less than 20% of the $13.87 billion the fund disclosed holding in regulatory AUM as of January 3, 2017. The recent 13F filing of the fund also revealed that it made some major changes to its 13F portfolio during the fourth quarter, with the portfolio experiencing a quarterly turnover rate of 53.23% during that time. Another insight from the filing is that Fir Tree’s 13F portfolio was considerably top-heavy going into 2017, as its top-10 equity holdings amassed over 60% of its portfolio’s value. In this article, we are going to take a look at five major moves made by the fund during the fourth quarter and will discuss the recent performance of these stocks.

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TiVo Corp (NASDAQ:TIVO)

Let’s start with TiVo Corp (NASDAQ:TIVO), in which Fir Tree initiated a stake during the third quarter, which stood as the fund’s eleventh-largest equity holding at the end of that period. While TiVo Corp (NASDAQ:TIVO)’s stock appreciated by almost 25% in the period that Fir Tree initiated its stake, it didn’t move much during the fourth quarter when the fund quickly sold off its entire stake in the company. However, the stock has again rallied significantly and is trading close to its 52-week high right now, owing to the better-than-expected fourth quarter results that the company reported on February 15, along with the announcement that it will start paying dividends and will boost its buyback authorization. Additionally, TiVo also revealed that it’s on track to achieve a cost synergy target of $100 million following its merger with Rovi. After the results were announced, analysts at B. Riley reiterated their ‘Buy’ rating and $31 price target on TiVo’s stock, which suggests upside potential of almost 50%.

We’ll check out four other major Q4 moves made by Fir Tree on the following two pages of this article.

NXP Semiconductors NV (NASDAQ:NXPI)

– Shares Held By Fir Tree (as of December 31): 1.33 Million

– Value of Holding (as of December 31): $130.7 Million

NXP Semiconductors NV (NASDAQ:NXPI) was a new entrant to Fir Tree’s portfolio during the fourth quarter. Shares of the semiconductor manufacturer spiked by nearly 23% at the end of the third quarter amid rumors that chip giant QUALCOMM, Inc. (NASDAQ:QCOM) was in talks with the company to acquire it. Those rumors turned out to be true on October 26, when QUALCOMM agreed to acquire NXP Semiconductors NV (NASDAQ:NXPI) for $110 per share or $47 billion including debt. Though NXP’s stock is currently trading up by 5.49% year-to-date, it’s still at a considerable discount to the price being offered by QUALCOMM, suggesting uncertainty regarding the completion of the deal. Earlier this month, QUALCOMM extended the offering period for cash tender of all outstanding NXP Semiconductors shares to March 3, 2017. The tender offer remains subject to conditions laid out earlier, which includes regulatory approvals and valid tender of at least 80% of NXP’s float.

Midstates Petroleum Company, Inc. (NYSEMKT:MPO)

– Shares Held By Fir Tree (as of December 31): 6.39 Million

– Value of Holding (as of December 31): $132.6 Million

Like NXP Semiconductors, Midstates Petroleum Company, Inc. (NYSEMKT:MPO) was also a new entrant in Fir Tree’s equity portfolio during the fourth quarter. The beleaguered oil services company was delisted from the NYSE a year ago. Shortly after that, it filed for Chapter 11 bankruptcy after reaching a preliminary agreement with its lenders on terms of a $2 billion debt-for-equity swap. However, that bankruptcy was short-lived, as within five months of filing it, Midstates Petroleum Company, Inc. (NYSEMKT:MPO) emerged out of it by eliminating the $2 billion in debt and $185 million in annual interest expenses. After being re-listed on the NYSEMKT in October, MPO’s stock has mostly been range-bound.

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