market folly

Undoubtedly, some of you are tired of hearing about Harbinger by now. But, when a large firm is this active, it gives us more to write about and as such we are happy to cover the developments. Literally last Thursday (4/23), we wrote about how Harbinger added to their Terrestar (TSTR) position. In that same article we also detail how they have been selling shares of Solutia (SOA). Yet, just a few days later, we have even more activity to cover. (Readers can view the rest of Harbinger's portfolio here).

Firstly, we'll deal with Solutia (SOA), which Philip Falcone's hedge fund has filed yet another Form 4 on. Previously, we mentioned they had been selling and this new Form 4 is of the same nature. Harbinger has sold an additional 3,705,550 shares on April 22nd and 23rd at prices of $3, $2.97, and the bulk of their sale at $2.76. Due to the continued selling of their position, they have also filed another amended 13D. In their previous 13D filing, they showed a 31% ownership stake. In the latest filing, they now disclose a 28% ownership stake in Solutia (SOA), reflecting the latest sales.

Portfolio re-tooling and re-shuffling has been the name of the game for Harbinger as of late. They've been selling some of their large Cliffs Natural Resources (CLF) stake in order to bring portfolio allocations back in line. Their large shuffling of their SOA further reiterates their desire to re-align their portfolio after sustaining losses in 2008. As many are aware, Harbinger has many large, concentrated positions in companies such as CLF, the New York Times (NYT), Calpine (CPN), and more. And, we've received even more news regarding their positions in the latter two.

In regards to Calpine, we have learned that Harbinger has agreed to sell 20,000,000 shares of their CPN position at a price of $7.9032 per share in a registered public secondary offering (with the option for a further 3,000,000 shares if over-allocated). Calpine will receive no proceeds from the offering and the closing is scheduled for April 29th. Due to this activity, they have also filed an amended 13D with the SEC and currently disclose a 25.2% ownership stake in CPN with 108,245,497 aggregate shares beneficially owned as of April 23rd, 2009.

Last, but certainly not least, Harbinger is also said to be listening to offers from potential suitors regarding their 20% stake in The New York Times (NYT). After sinking almost $500 million into NYT over the past two years, Harbinger has seen their 20% stake deteriorate so much that it is now barely worth over $155 million. A potential sale of part or all of their position is certainly feasible, as it fits the bill of Harbinger's recent tendency to trim their large portfolio holdings. Some have speculated that those interested in bidding might be Bloomberg, among others. Although Harbinger has not yet stated that they are willing to sell, they have definitely indicated others are interested in their stake. And, like we said, given their situation and recent tendency to trim positions, it certainly would not be a surprise for them to offload some of their stake.

The newspaper industry, and NYT in particular, is an interesting target. We've postulated before that newspapers as an industry need change. Harbinger entered their NYT stake with an activist bent to begin with. They've made some progress by engaging in a proxy fight and slating two Harbinger directors on the board. Their goal here is clearly to push for change in the form of the sale of their Boston Red Sox stake and their sale/shuttering of The Boston Globe. Either way, it's apparent that breaking up the company and selling off some assets is desired by many. And, Harbinger is not alone in their large stake in NYT. Mexican Billionaire Carlos Slim also has a large presence in NYT. With a majority controlling family at the helm, and some activists in the mix, there are bound to be further headbutts and fireworks. And, we'll be right there along for the ride, following the developments.

We've told a few inquisitive readers before that we basically think Harbinger is "reseting" their portfolio to a certain extent. The volatility of 2008 certainly highlighted the downside to running a concentrated portfolio and stretching yourself too thin across such large positions. Not to mention, fund losses certainly threw portfolio allocations out of whack. As such, we'd speculate that they're just freeing up capital and bringing portfolio metrics back in line, as they originally stated they were doing with their CLF position. All of this, my friends, is exactly why we like to track the movements of the big funds. Their major moves affect markets and in turn affect other investors. So, even if you aren't involved in a particular stock, it's still prudent to know where they've been, and where they're most likely to go. As such, our hedge fund portfolio tracking series was born.

Harbinger has seen recent portfolio performance of +0.74% for March 2009, and +4.06% year to date as of that timeframe, as referenced in our detail of hedge fund performances. They've (obviously) been quite active with filings and we'll continue to monitor them going forward.

Harbinger Capital Partners is a $13 Billion firm ran by Philip Falcone. Harbinger was started in 2000 with seed capital from Harbert Management ($25 million). And, just recently, we've learned that Falcone is buying out Harbert to be the owner of the firm. Falcone made a name for himself in 2007 when he started shorting subprime mortgages and returned 117%. He focuses on intensive credit research, on bankruptcies and proxy fights, and was previously involved with high yield debt trading. Lately, he's been focused on equities it seems, but Harbinger's new fund will redirect his focus back to his roots.

At one point during 2008, they were up as much as 42%. But, their fortunes turned as their Offshore fund finished -22.7% for the year as noted in our 2008 hedge fund performances list. One position that treated them nicely was their short of Wachovia (WB), which we detailed here. Back in September, in a letter to investors, Falcone had assured investors that Harbinger was adequately positioned to stave off any further volatility the markets may bring their way, noting that the firm had reduced exposure to some of their higher volatility holdings (both on the long and short side).

In Harbinger's latest letter to investors, they mentioned that they had covered their shorts on metal producers and financials and also got out of some credit default swaps. Falcone also mentioned that they had added trade claims on an energy company and credit default swaps on various consumer plays (retailers, products, & services). Lastly, we saw that Philip Falcone was recently unveiled as a part of Forbes' billionaire list.

Taken from Google Finance,

Solutia is "a global manufacturer and marketer of a variety of chemical and engineered materials that are used in a range of consumer and industrial applications. The Company maintains a global infrastructure consisting of 25 manufacturing facilities, six technical centers and over 29 sales offices globally, including 14 facilities in the United States. The Company’s segments are Saflex, CPFilms and Technical Specialties."

Calpine is an "independent wholesale power generation company engaged in the ownership and operation of natural gas-fired and geothermal power plants in North America. The Company sells wholesale power, steam, capacity, renewable energy credits and ancillary services to its customers, including industrial companies, retail power providers, utilities, municipalities, independent electric system operators, marketers and others."

New York Times is "a diversified media company, including newspapers, Internet businesses, a radio station, investments in paper mills and other investments. The Company is organized in two segments: News Media Group and the About Group."