The Morning Brief: Atlantic Ramps Up Owens-Illinois Stake

Alexander Roepers’s Atlantic Investment Management boosted its stake in Owens-Illinois to 11 million shares, or 6.7 percent of the total outstanding, in an amended 13D filing. The New York–based equity hedge fund manager, who sometimes pursues activist strategies, says in a regulatory filing that he may engage in discussions with management, the board of directors and others about possible ways to boost shareholder value, but stresses that it “has no present plans or proposals ” for the maker of container glass products. Atlantic is best known for managing the AJR fund, Cambrian Fund and Cambrian Global Fund.


Activist hedge fund firm Barington Capital Group announced it plans to vote for Starboard Value’s director nominees at the Darden Restaurants annual meeting. In a letter to Darden’s independent directors, Barington’s James Mitarotonda asserts that shareholders will most benefit from the implementation of Starboard’s plan, which he says is similar to his December 17, 2013 plan.

“These include separating Darden into independently-managed restaurant operating companies to improve execution and brand-level focus, as well as unlocking the value of the company’s extensive real estate holdings, such as through the formation of a publicly traded real estate investment trust,” he adds.


Birch Grove Capital has gotten off to a good start. The New York–based firm, founded by Jonathan Berger with $300 million, posted a 7.64 percent net gain in its first year of operation, according to its September letter, obtained by Alpha. The fund, which specializes in credit-related investments, did not suffer a loss in any of its first 12 months of operation.

“(We) have posted consistent monthly performance in a difficult investing environment,” states Berger in the letter, noting that assets now stand at $500 million. “We are in a market where yields are at record lows and spreads are near record tights.”

He tells clients that in this type of environment, he does not want to make a market bet and be positioned too long or too short. The fund now has a low net exposure to both the equity and credit markets. But he is excited about the prospects for continued strength in the mergers and acquisitions market, noting that private equity firms are sitting on $440 billion in “dry powder.” Berger was previously president and chief investment officer of Stone Tower Capital, a $17 billion alternative credit asset management firm acquired in 2012 by Apollo Global Management.


Credit Suisse, a long-time Sears Holdings skeptic, fired off a fresh note Thursday asserting that the recent news regarding the embattled retailer led it to think of The Doors’ “This is the end” song.

“Let’s face facts,” the note states. “Sears is generating negative operating cash flow of between $1 billion and $2 billion in 2014. Unless it sells off real assets while somehow maintaining the cash flow from those assets, this story is not likely to have a happy ending, and that ending continues to depend on suppliers. “

It also says that while bulls like to argue that Sears still has access to all of its real estate, this situation “changed significantly” with the recent deal to borrow $400 million from hedge fund firm ESL Investments — the retailer’s largest shareholder — which was secured by 25 locations. “All of a sudden, as a vendor, one has to ask if cash flow is that tight that ESL needs to lend the money,” Credit Suisse states in the note. “And why is it taking first dibs on so-called valuable real estate if that was what the vendors had counted on if things further deteriorate?”

The investment bank wonders whether Sears will need all of its remaining good assets to pledge them for future similar arrangements “to keep this money-losing business going?” The upshot: This development “seems bad” for vendors and bullish investors who insist the asset value is greater than the stock. In fact, Credit Suisse insists that every year Sears keeps operating “is taking over $10 a share of value away every year.” Now that is a pretty startling analysis.


Credit Suisse also raised its price target on home builder Lennar to $43 from $39 and raised its earnings estimates after the company reported quarterly results that beat consensus forecasts. We reported earlier this week that Kenneth Griffin’s Citadel boosted its stake in Lennar to 9.37 million shares, or 5.4 percent of the total outstanding from 3.62 million shares at the end of June.


Deutsche Bank on Thursday raised its price target on DuPont by $5 to $80 and repeated its Buy rating. The move comes one day after the chemical giant’s stock surged more than 5 percent in response to Trian Fund Management’s public call for DuPont to split into two companies. “We believe that at the very least will result in healthy debate on the merits of the portfolio and the opportunity for further cost reduction in the corporate and unallocated expense categories,” the investment bank tells clients in a note.