The Morning Brief: Hedge Funds Move Into Energy Stocks

As oil prices and energy stocks continue to sink, a number of hedge funds are moving into the sector. At least two hedge funds disclosed on Friday that they took advantage of the recent declines by taking sizable stakes in small- and mid-cap energy companies, according to regulatory filings.

Dmitry Balyasny’s Balyasny Asset Management disclosed that it owns 5.3 million shares of Oasis Petroleum, or 5.24 percent of the total. The exploration and production company was not among any of the 690 or so individual equity positions held by the Chicago-based hedge fund firm at the end of the third quarter.

Boston-based Adage Capital Partners disclosed that it bought more than 1.3 million shares of Pacific Drilling S.A., boosting its total stake in the offshore driller to 11.5 million shares, or 5.27 percent of the total outstanding. We earlier reported that on Thursday the Chicago-based hedge fund firm Citadel raised its stake in C&J Energy Services, a fracking services company, to 5.1 percent of the total outstanding. Point72 Asset Management, the family office founded by Steven Cohen that previously existed as hedge fund firm SAC Capital Advisors, disclosed that it established a 5.1 percent stake in Jones Energy, an independent oil and gas company. The firm did not own any shares of Jones at the end of the third quarter.


Score another one for Barry Rosenstein’s Partners. About four-and-a-half months after the New York-based activist hedge fund firm called on PetSmart to seek a buyer for itself, the pet products retailer on Sunday evening announced that it agreed to be acquired by a group led by European private equity firm BC Partners for $83 per share in cash. Other members of the buying group include La Caisse de dépôt et placement du Québec, which manages public pension plans in Quebec, and New York investment management firm StepStone.
Under the deal, Longview Asset Management, which owns 9 percent of PetSmart’s stock, “committed” to vote in favor of the deal, PetSmart said in a press release. The Wall Street Journal said the BC Partners group beat out buyout firm Apollo Global Management. Back in late July, Jana, which owns 9.8 percent of PetSmart’s shares, said in a regulatory filing that it opposed PetSmart’s then-planned leveraged recapitalization. “A sale very likely offers the highest possible risk-adjusted return for shareholders,” Rosenstein said in a letter sent to PetSmart’s board of directors at the time. He said he agreed with long-time shareholder Longview Asset Management that the company would most likely receive the highest price from so-called private market participants versus the public market. He apparently was right.
___ Robert Citrone’s South Norwalk, Connecticut-based Discovery Capital Management boosted its stake in Bob Evans Farms by 100,000 shares, to 2.1 million shares, or 8.9 percent of the restaurant and packaged foods company. It already was the largest shareholder at the end of the third quarter. The latest filing indicates this is a passive position. In August, Thomas Sandell’s Sandell Asset Management won four seats in its proxy fight at the company’s annual shareholder meeting. In the third quarter, Sandell boosted its stake by 7 percent to nearly 1.53 million shares of stock. However, on December 3, shares of Bob Evans plunged 13.5 percent, to $48.54 in one day after the company reported that revenues and same-store sales came in below expectations. Discovery’s filing for its current stake is dated December 3. The stock has since rallied by about 5.4 percent.
___ Philip Hilal, who formerly worked at Kingdon Capital Management, is launching Clearfield Capital Management, which will emphasize long-short equity and event-driven investments, according to a Reuters report citing a person familiar with his plans. He previously spent eight years at Mark Kingdon’s New York-based hedge fund firm. Hilal has so far raised more than $200 million, including from Kingdon himself, according to the report. New York-based Clearfield has already hired two analysts who have worked with Hilal in the past as well as a chief financial officer. Interestingly, Gary Claar, a co-founder of Barry Rosenstein’s New York-based Jana Partners and a former co-portfolio manager at the firm, will serve as a strategic adviser, Reuters notes.


Shares of Office Depot rose 3.45 percent on Friday, while Staples surged 2.3 percent on an otherwise huge down day for stocks. Office Depot is now up 20 percent in the past six trading days alone, while Staples is up 19 percent in the past nine trading days. Last week activist hedge fund Starboard Value disclosed that it took a 6 percent stake in Staples and boosted its position in Office Depot to 9.9 percent.