At the end of 2011, Farallon Capital Management’s AUM stood at over $21 billion. Farallon and its senior managing partner Thomas Steyer run a number of strategies and rotate among them opportunistically. Farallon had some big shakeups for such a large fund in the second quarter of 2012, reporting seven new positions in its top ten holdings. We have gone through the fund’s 13F compared to previous filings and here are some major themes which we noticed:
Big media. The biggest move that Farallon made was increasing its position in CBS Corporation (NYSE:CBS) and News Corp (NYSE:NWSA). The fund had opened the second quarter with 2.3 million and 2.8 million shares of these companies, respectively; over the next three months it added shares, and closed the quarter with 4.4 million shares of CBS Corporation (NYSE:CBS) and 6.2 million shares of News Corp. This would seem to reflect an industry play on broadcast and cable television, as fellow major networks ABC and NBC are owned by Disney and Comcast, respectively, and these companies have many other operations that Farallon might not want exposure to. News Corp (NYSE:NWSA) also has breakup potential, and made our list of the ten most popular services stocks among hedge funds for the first quarter, while CBS trades at only 12 times forward earnings and may be a value play.Completed transactions. Farallon had been invested in several merger targets which completed in the second quarter. El Paso was acquired by Kinder Morgan, Medco Health Solutions was acquired by Express Scripts, Motorola Mobility was acquired by Google, and Goodrich was acquired by United Technologies. Since the first three of these had been the fund’s three largest positions at the end of March Farallon ended up with a good deal of new capital to invest. We’ve discussed the movement into big media stocks, but those are really the exception to the rule: that the fund allocated much of its capital to increase positions in some of its existing holdings, rather than initiating any large positions (the fund does now own 4 million shares of Kinder Morgan (NYSE:KMI), but that is compensation related to the El Paso transaction). Owens-Illinois. Similarly, Farallon added 1.2 million shares to its stake in Owens-Illinois (NYSE:OI) to finish the second quarter with a total of 8.2 million. Owens-Illinois produces glass drink containers and despite a rocky past year is expected to turn around with sell-side analysts assigning earnings estimates for next year which imply a forward P/E ratio of 6. On a longer term, the five-year PEG ratio in 0.8. In this case we are a bit more understanding of the fund’s move on value grounds: Owens-Illinois, while highly exposed to the broader market with a beta of 2.2, has good potential for a turnaround and is undervalued relative to the likelihood of that scenario. We are wary of recommending News Corp due to its high valuation- the stock is probably already being pushed up by breakup speculation- but think that CBS could be a good value stock for investors who agree with Farallon that television is at least a stable, if not growing, business to be in. Other than that, we see only moderate additions to the fund’s other positions, suggesting that it doesn’t really see any major macro factors that it wants to gain exposure to at this time. Of course, we at Insider Monkey will continue to watch for any filings or other information from the fund which signals an increased position in any other stocks.