David Tepper’s Appaloosa disclosed a 8.26% stake in CVR Energy (CVI). Tepper had 1.5 Million shares of CVI at the end of March, so he added more than 5.6 Million shares as the stock dipped below $20. Yesterday we covered Dan Loeb’s May performance and top holdings and revealed that CVR Energy is Loeb’s fifth largest position.
Dan Loeb’s Third Point had 7.3 Million shares of CVI at the end of March. Eric Mindich’s Eton Park, Ken Griffin’s Citadel, and Douglas Hirsch’s Seneca Capital are among the hedge funds with CVI positions. In our article titled “Three SpinOut Ideas From Dan Loeb’s Third Point“, we presented Dan Loeb’s reasoning for making such a huge bet on CVI as follows:
CVR Energy has two assets: an oil refinery and a nitrogen fertilizer plant, both located in Coffeyville, Kansas. Each of these assets is benefiting from huge structural tailwinds, and the Company is pursuing a spin‐out of the fertilizer business that will, consistent with the theme described above, highlight the value of these assets. We originally purchased CVR in November 2010 on the belief that the Company would be an ideal spin‐out candidate, added to the position in a February secondary offering, and subsequently have purchased additional shares in the market.
CVR filed an S‐1 for the IPO of its fertilizer business in late March. Based on comparable valuations, CVR’s geographically advantaged assets, and the strong outlook for nitrogen fertilizer, we believe the Company will receive a robust valuation for these assets at the time of the IPO. Additionally, CVR is pursuing an MLP structure for this offering, which we believe will result in the fertilizer plant trading at a very high valuation due to investors’ desire for yield in today’s low interest rate environment.
The outlook for CVR’s refining business is likewise strong. The facility recently underwent an extensive upgrading process and is ideally located to take advantage of the oil supply/demand imbalance in the Cushing market. In short, increased supply of oil is flowing into Cushing, and there is presently inadequate take‐away capacity in this market. The result has been that WTI oil prices are at a large discount to oil delivered at other locations, creating the prospect of windfall profits for refineries in this region, as the competition in other regions must source higher‐cost oil. We think that this imbalance should persist for at least the next twelve‐to‐eighteen months (and quite possibly much longer). As a result, we are very constructive on mid‐continent refineries. Further, netting the value of the fertilizer spin, we believe we are creating the CVR refinery operation at a 50% discount to the mid‐continent comparables.
