Klarman’s European Adventure – Vivendi

Seth Klarman, one of the world's best value investors, has taken the plunge in troubled European media and telecommunications giant Vivendi.

The secretive hedge fund manager Seth Klarman, founder of Baupost Group, is rightfully regarded as one of the best value investors in the world.

His fund’s portfolio is usually filled with unlisted investments like distressed debt, put and call options on gold and long-dated bonds, quirky real estate holdings, potato farms with 'higher and better use' potential and other esoteric holdings of which the outsider has little knowledge.

But, each quarter, in line with American laws, the fund discloses its position in US-listed stocks. Here is the latest quarterly filing from Baupost, showing its 20 US-listed equity positions as at 31 March 2012.

All up, those common stock positions make up only about 15% of the hedge fund’s estimated funds under management, and individual positions may well be hedged through derivatives. Nevertheless, it’s interesting to know what one of the value investing greats is doing in common stocks.

The largest positions as at 31 March were a $510m investment in News Corp (in two classes of shares) and $506m in Viasat, both acquired at much lower prices.

That’s just the US positions though. Generally-speaking, the fund is under no obligation to provide such clear reporting on its non-US stock positions, which we know have been a decent part of the portfolio at various times over the past few decades.

Baupost opened an office in London recently, mainly to pursue European distressed debt and property assets but potentially also to dig deeper into European equities.

So we were intrigued to see the scoop on the ValueWalk blog last month that Baupost owns 25.5m shares of French multinational media and telecommunications giant Vivendi.

The position was disclosed in Vivendi's 2011 annual report, and must have been acquired sometime over the preceding 12 months. The stake, worth about €340m (or US$430m), is bigger than all but two of Baupost’s US stock positions.

A few things make this stake interesting for anyone prepared to look at international stocks (we haven’t looked closely, so please don’t consider this a recommendation).

Firstly, Vivendi is just the sort of complex, hard to analyse and somewhat troubled company in which Baupost specialises. Its disparate parts probably include a few ‘gems’. One assumes Baupost made this investment because the sum of the group’s diverse parts are, in its estimation, worth significantly more than the stockmarket valuation for the whole.

While there are probably as many differences as similarities, it’s hard not to draw parallels with News Corp, which has been such a home run for the fund.

Secondly, Vivendi's stock is trading close to its 12-month low (and well below the prices it traded in the 2008/09 panic). In other words, one can probably buy shares today at or below the price paid by Baupost. Of course, that doesn’t mean it will work out well—no investor is infallible. But Klarman is closer than most, and Vivendi might be a good stock to put on the list for anyone willing to do their own detailed research.

All things being equal, Vivendi is likely to feature in Intelligent Investor’s special report on international stocks, which will be available to all members in early July.

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