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The Morning Brief: Activist Sachem Head Lays Siege to Autodesk

Shares of Autodesk surged nearly 10 percent to $63.49 after activist hedge fund Sachem Head Capital Management disclosed it owns 5.7 percent of the maker of 3-D design software. In a regulatory filing, the New York hedge fund headed by Scott Ferguson said the shares are undervalued and plans to hold discussions with management, the board and other shareholders as to business, management, operations, including cost structure, assets, capitalization, financial condition, strategic plans, governance and board composition, and the future of the company. The firm also threatened to “take one or more” actions. Sachem Head posted a 2.39 percent loss in August but was still up nearly 12 percent for the first eight months of the year. At the end of the second quarter, Sachem Head held only six stocks in its concentrated portfolio. However, San Rafael, California-based Autodesk was not one of them, yet another example of how activists rarely, if ever, telegraph their future targets. Ferguson spent nine years at William Ackman’s Pershing Square Capital Management, having joined as the firm’s first investment professional and partner after earning an M.B.A. from Harvard Business School in 2003.

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Was Wednesday Valeant Pharmaceutical International’s capitulation day—the day hedge funds finally waved the red flag and dumped their positions in the beleagured drug company? After all, the stock plummeted more than 14 percent to $78.77 (yikes!) after dropping as low as $73.32 during the session, even though there was no stock-moving news. However, unless those selling owned at least 5 percent of the shares, we won’t know who was unloading the stock until as late as mid-February. That’s the deadline for filing 13Fs detailing holdings as of the end of the fourth quarter. November 16 is the deadline for third-quarter holdings. But we’ll only know who owned shares or sold shares as of September 30. That will still be interesting to see.

Keep in mind we already reported that at the end of the third quarter, Valeant was the eighth-largest long of Greenwich, Connecticut-based Viking Global Investors, according to its client letter, while Greenwich, Connecticut-based Lone Pine Capital maintained a large position in the stock in its long-short fund, Lone Cypress.

Another fund that apparently did not exit the stock was Ackman’s Pershing Square. According to several published reports, the New York activist praised Valeant chief executive Michael Pearson and said he would support “any and all alternatives” that would benefit shareholders, according to a letter sent from Ackman’s email account to Pearson and seen by Reuters. “We share the board’s confidence in you and your leadership,” the letter reportedly adds.

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Nelson Peltz’s Trian Partners had a very strong October, surging 10.47 percent for month. This put the New York activist back in the black for the year, up 4.29 percent. Trian is not the only activist to post strong gains in October. We earlier reported that Richard (Mick) McGuire III’s Marcato Capital Management rose 8.4 percent last month, cutting the San Francisco activist’s loss to 4 percent for the year.

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Shares of hedge fund favorite Facebook surged 4.6 percent to $108.76 after the social media pioneer reported better-than-expected earnings. As a result, a number of investment banks raised their price targets Thursday morning. Stifel Nicolaus lifted its target from $108 to $120; Deutsche Bank raised its from $115 to $135; UBS went from $110 to $125; while Credit Suisse moved its from $115 to $135. “Once again the highlight was strength in Facebook’s mobile-advertising business,” Credit Suisse said in a note. But it added that this time results were also driven by a contribution from Instagram, a ramp-up of “dynamic product ads” as well as continued strength in its existing core mobile newsfeed ads.

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Shares of Michael Kors jumped more than 2 percent Thursday even though Credit Suisse cut its price target from $100 to $90 and reduced its earnings forecasts. However, the investment bank retained its Outperform rating, noting that the company announced its intention to invest in the business. “The investments are fundamentally smart and should enhance the company’s long-term growth potential,” it added in a note to clients. Two of the top-10 investors at the end of the second quarter included two New York-based hedge funds—David Einhorn’s Greenlight Capital and Ricky Sandler’s Eminence Capital.

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Fitch Ratings affirmed its long-term default rating for Och-Ziff Capital Management Group at BBB- and a stable outlook. It also affirmed that the hedge fund company’s $400 million of senior unsecured notes issued by Och-Ziff Finance Co. at BBB-. Fitch says in its announcement that the moves reflected Och-Ziff’s “established franchise and long-term performance track record, particularly in the firm’s core multi-strategy hedge fund business; appropriate leverage and interest coverage metrics; strong profitability; and a seasoned management team.” The rating agency added that the firm has demonstrated relatively consistent long-term investment performance, noting its multi-strategy funds reported only three losing years since its inception in 1994.

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