Billionaire Dan Loeb’s Biggest Moves in Q4

Billionaire Dan Loeb founded value-oriented hedge fund Third Point LLC in 1995 with only $3.4 million in capital, and since then, has become one of the most closely-watched hedge fund managers in the world. The billionaire investor has three decades of experience in the industry and has been very successful in generating attractive returns for his clients. In fact, Third Point has generated an annualized return of 16.2% since its inception, through the end of December 2015, compared to the return of 7.3% generated by the S&P 500 Index over the same time span. Nonetheless, the fund was down by 1.4% in 2015, being severely hit during the turbulent third quarter. According to Third Point’s latest letter to investors, the widely-known investment firm significantly reduced its exposure to companies that were “economically sensitive or tied to China or to commodity pricing” and significantly increased its short exposure in the second half of 2015. To be more detailed, the firm said that it had increased its single-name equity shorts fourfold over the past year. Nonetheless, as 13Fs do not disclose hedge funds’ short positions, individual investors should focus on their highest conviction long-term bets instead. The data compiled by Insider Monkey shows that Third Point’s long positions in companies with a market capitalization of more than $1 billion delivered weighted average returns of 1.1% in 2015, based on the size of the positions at the beginning of each quarter of the year. Leaving the fund’s performance aside, the following article will discuss Dan Loeb’s largest and most noteworthy moves made during the fourth quarter of 2015, as revealed in his latest 13F filing.

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Let’s kick off our discussion by looking at a new position initiated by Third Point during the fourth quarter. Dan Loeb’s fund acquired a new stake of 1.50 million shares in Chubb Limited (NYSE:ACE), now Chubb Corp (NYSE:CB), which was valued at $175.28 million on December 31. During the summer of 2015, Swiss insurer ACE Limited announced the acquisition of Chubb for $62.93 in cash and 0.6019 shares of ACE stock. The deal was completed in mid-January, after which ACE adopted the Chubb name globally. The freshly-combined company represents the world’s largest publicly-traded property and casualty insurance company. Meanwhile, the recent combination is anticipated to generate annual expense savings of approximately $650 million pre-tax by 2018. The insurance behemoth also expects to spur meaningful growth in the form of additional revenue, so the merger was not only about cost synergies. Meanwhile, the shares of the new Chubb Corp (NYSE:CB) are trading at a forward P/E multiple of 10.95, which is below the average of 11.70 for the Property & Casualty Insurance industry. Clint Carlson’s Carlson Capital LP reported owning 1.92 million shares of Chubb Corp (NYSE:CB) through its 13F for the fourth quarter.

We have four more of the Dan Loeb’s biggest fourth quarter moves on the next two pages.

Moving on to another bullish move made by billionaire Loeb, the New York-hedge fund manager upped his position in Allergan plc (NYSE:AGN) by 1.73 million shares during the October-to-December quarter, to 5.40 million shares. The stake was valued at approximately $1.69 billion at the end of December and accounted for 17.12% of his fund’s entire portfolio. In November 2015, Pfizer Inc. (NYSE:PFE) and Allergan announced a merger agreement under which the two businesses will combine to create the world’s largest drugmaker. The combined company is anticipated to keep Allergan’s Irish legal domicile, which makes the deal the largest corporate inversion in history. The tax-inversion deal is expected to close in the second half of 2016. Although most investors and analysts have been focusing on the financial benefits of this deal, Pfizer’s executives have been suggesting that Allergan plc (NYSE:AGN)’s product pipeline is also greatly underestimated by the market. In the meantime, the shares of the Botox-maker are down by nearly 10% since the beginning of 2016. Jacob Gottlieb’s Visium Asset Management owns 1.10 million shares of Allergan plc (NYSE:AGN) as of December 31.

Third Point LLC was also bullish on Dow Chemical Co (NYSE:DOW) in the final quarter of 2015, as the fund lifted its stake in the company by 1.75 million shares during the three-month period. Dan Loeb’s firm owned 25.25 million shares of Dow Chemical at the end of 2015, which were worth approximately $1.30 billion. In December 2015, Dow Chemical Co (NYSE:DOW) and E I Du Pont De Nemours And Co (NYSE:DD) announced an all-stock merger that will definitely reshape the chemical and agricultural industries. The transaction is anticipated to close in the second half of this year, with the combined company to be called DowDuPont. The soon-to-be created behemoth will strive to generate $3 billion in cost synergies before splitting into three independent, publicly-traded companies, which will include a pure-play agriculture company, a pure-play material science company, and an innovation-driven specialty products company. Under the terms of the deal, each shareholder of Dow Chemical will receive one share of the combined company for each Dow share owned, while DuPont Shareholders will receive 1.282 shares for each DuPont share. John A. Levin’s Levin Capital Strategies increased its position in Dow Chemical Co (NYSE:DOW) by 1.40 million shares during the fourth quarter, to 5.31 million shares.

Let’s now turn our attention to two “bearish” moves made by Third Point regarding two of its formerly prominent positions. To begin with, the New York-based investment vehicle cut its position in Yum! Brands Inc. (NYSE:YUM) by 11.52 million shares during the December quarter, leaving it with just 75,300 shares. The slashed stake was valued at roughly $5.50 million at the end of 2015. The operator and franchisor of KFC, Pizza Hut and Taco Bell restaurants has seen its shares decline by almost 11% over the past 12-month period. The company’s China business continues to recover from the negative publicity it received in July 2014 related to a food scandal. KFC China same-store sales grew by 6% year-over-year in the final quarter of 2015, after growing by 3% in the third quarter. Meanwhile, the company added at least 2,300 new restaurants last year and expects to open an additional 2,400 restaurants in 2016, which makes us believe that Yum! Brands Inc. (NYSE:YUM) is poised to experience strong growth in the upcoming quarters. Moreover, the company is on track to spinoff its China unit, which will most likely lead to diminished uncertainty around the company’s future performance and growth. Ricky Sandler’s Eminence Capital holds a 2.69 million-share position in Yum! Brands Inc. (NYSE:YUM) as of the end of 2015.

Last but not least, Dan Loeb’s fund cut its stake in Kraft Heinz Co (NASDAQ:KHC) by 8.17 million shares during the fourth quarter, leaving it with only 82,000 shares at the end of December. The shares of the food and beverage company are flat year-to-date. Let us remind you that Kraft and Heinz merged last year to create one of the world’s largest food and beverage companies, a move that was maneuvered by billionaire Warren Buffett and private-equity firm 3G Capital Partners. The combined company posted pro forma net sales (pro forma results assume that the two companies were combined during all periods presented) of $20.32 billion for the nine months that ended September 27, down from $21.63 billion reported for the same period of the prior year. The 6% decrease was mainly attributable to exchange rate headwinds and divestitures. It is important to note that Kraft Heinz Co (NASDAQ:KHC) pays out an annualized dividend of $2.30 per share, thus offering a current dividend yield of 3.20%. John Griffin’s Blue Ridge Capital cut its stake in Kraft Heinz Co (NASDAQ:KHC) by 515,000 shares during the fourth quarter, ending the year with 2.33 million shares.

Disclosure: None