Williams Companies, Inc. (NYSE:WMB)‘s stock exploded today as shares soared by just under 26% as news emerged that Williams Companies, Inc. (NYSE:WMB) had rejected a $48 billion takeover offer from one of its rivals, Energy Transfer Equity Lp (NYSE:ETE). Several hedge funds tracked by Insider Monkey scored big on the news today, owning large and lucrative positions in the company. One of them was Corvex Capital, managed by activist Keith Meister, which holds a large position of 41.68 million shares that was valued at $2.11 billion at the end of the first quarter, comprising 25.5% of its 13F portfolio. Assuming little change in his position (it was unchanged throughout the first quarter), Meister just made a cool $500 million on the gains today. Eric W. Mandelblatt‘s Soroban Capital Partners also held a large position of 21.0 million shares valued at $1.06 billion in Williams Companies, which accounted for 9.9% of its 13F portfolio. Other hedge funds which remained bullish on the stock and held long positions include Stephen Mandel‘s Lone Pine Capital, Daniel S. Och’s OZ Management, and Robert Pitts’ Steadfast Capital Management.
Professional investors like Meister spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 142% and beaten the market by more than 84 percentage points since the end of August 2012, and by 4.6 percentage points in the first quarter of this year (see the details).
The takeover offer valued Williams’ shares at $64 per share, which was a 33% upside from Williams Companies, Inc. (NYSE:WMB)’s closing price on Friday. Williams’ board however pointed out that the offer was significantly undervalued. So while it would seem to be much ado about nothing on the surface, the takeover push by Energy Transfer Equities has convinced Williams to look for a strategic alternative that could still include a sale or merger at a greater valuation, which is why shares have remained high despite Williams turning down the takeover offer.
Let’s turn our attention back to hedge fund sentiment. Aside from the large, bullish positions held by several fund managers, overall hedge fund ownership declined to 60 at the end of the first quarter from 77 at the end of 2014. This will certainly disappoint many investors, who lost out on the 25% profits to be had today. Overall, aggregate capital invested in the stock by hedge funds did increase despite the drop in ownership, to $6.62 billion at the end of the first quarter from $6.5 billion three months earlier. With shares gaining 12% during the first quarter, the small gain in total capital invested suggests that about 10% of funds’ collective position in the stock was sold off, however given the bigger decrease of 22% in fund ownership, it shows that those that were bullish on the stock remained quite bullish, while numerous fringe investors moved on to other investments.
Let’s take a look at the insider activity on the stock. There were no insider purchases on the stock, but there were a few insider sales of the stock recorded in the first and second quarters. Senior VP of Williams Companies, Inc. (NYSE:WMB), Robyn Ewing sold around 55,oo0 shares in the first quarter and another 10,000 shares in the second quarter. Senior VP Brian Perilloux sold around 20,000 shares in the first quarter, and Francis Billings, Senior VP, sold around 67,000 shares in the second quarter.
Let’s take a glance at the other hedge fund activity surrounding Williams Companies, Inc. (NYSE:WMB).
How have hedgies been trading Williams Companies, Inc. (NYSE:WMB)?
At the end of the first quarter, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in the stock, a change of -22% from the previous quarter. As seen from the overall hedge fund sentiment, there were some hedge fund managers who opted out of this stock in the first quarter and lost the opportunity to cash in during the big move upwards today. The largest stake in Williams which was completely off-loaded was by Matthew Knauer and Mina Faltas of Nokota Management, who off-loaded 4.35 million shares which were valued at $195.3 million as of the end of the fourth quarter.
Even though the majority of hedge funds were bearish on the stock, a few hedge fund managers like Keith Meister and Eric Mandelblatt were bullish and made big investments in Williams Companies, Inc. (NYSE:WMB)’s stock and are all set to reap the benefits as the stock is on the way up following a big takeover proposal and the company’s efforts to push its value up even further by rejecting the initial offer from its rival. Keith Meister’s hedge fund, Corvex Capital, which had invested 25.5% of its 13F portfolio in Williams Companies, Inc. (NYSE:WMB), is now set up for big second quarter returns following Meister’s master stroke of an investment.