Billionaire Paul Singer Is Counting on These Companies

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Billionaire Paul Singer’s hedge fund, Elliot Associates, has a strategy of buying distressed securities cheaply, and sell them later at a higher price. Last year, the fund posted a return of 13% on its holdings. Elliot has $21 billion assets under management. As per its recent 13F filings with the SEC on March 31, 2013, it disclosed four new positions and 13 exits.

In this article, I have analyzed top three holdings of Elliot Associates. These holdings constitute 58% of its portfolio. Let’s see what potential investment opportunities are available in Elliot’s top three holdings.

<table> <thead> <tr><th> <p><strong>Company</strong></p> </th><th> <p><strong>Percent Holding</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p><strong>Delphi Automotive <span class="ticker" data-id="270250">(NYSE: <a href="">DLPH</a>)</span></strong></p> </td> <td> <p>21.12%</p> </td> </tr> <tr> <td> <p><strong>Hess <span class="ticker" data-id="209510">(NYSE: <a href="">HES</a>)</span></strong></p> </td> <td> <p>23.33%</p> </td> </tr> <tr> <td> <p><strong>BMC Software <span class="ticker" data-id="202972">(NASDAQ: <a href="">BMC</a>)</span></strong></p> </td> <td> <p>13.78%</p> </td> </tr> </tbody> </table>

Acquisition strengthens company’s segment

China is the world's largest automobile market. Recently, stringent automotive emission standards were introduced in China to reduce carbon emissions, maintain air quality, and high oil prices. Taking advantage of this opportunity, Delphi has expanded its “Powertrain Systems” which consists of gasoline engine management systems. This expansion will help local Delphi customers meet the tough “China V” emission standards.

Since expansion, the company has supported more than 50 Chinese original equipment manufacturers with development and supply of gasoline engine management systems. Not only does Delphi support Chinese customers, but it has also strengthened its position in engine management systems. With this expansion, the expected revenue of “Powertrain Systems” for this year is $4.81 billion and $5.3 billion next year.

In 2012, Delphi acquired FCI Group’s motorized vehicles division, a leading global manufacturer of connector and electronic content in motor vehicles. This acquisition has strengthened Delphi’s position as a leading global manufacturer in the connector industry and the electrical/electronic architecture industry. This segment offers designs for vehicles' electronic architecture, connectors, safety distribution systems, and hybrid high voltage systems. After the acquisition, the company’s electrical/electronic architecture segment reported revenue of $1.92 billion, up 11% year-over-year, in the first quarter of this year. Expected revenue in the fourth quarter of this year is $2 billion.

Opportunity to become a private company

BMC is a leading company in innovative IT solutions and business services. It has also set a benchmark in growing segments like cloud management, workload, and service management. Because of its capabilities, it has become a target for acquisition by investors. The company recently announced its intent to be acquired by a private equity group led by Bain Capital.

With the execution of this deal, BMC has the opportunity to become a private company. By going private, the company will have the additional advantage of investing strategically to develop innovative products and to deliver the latest advanced solutions to its customers. The group of investors will buy BMC's outstanding common stock for approximately $6.9 billion, or $46.25 per share. The deal is expected to close in August.

On the other side, the demand for BMC's ‘MyIT’ has increased since its launch in October 2012. A beta version was launched in January 2013, and was commercialized starting in April 2013. MyIT is an application that allows IT departments to offer employees personalized access and control over IT services and information “anytime, anywhere, and from any device.” This application reduces IT cost up to 25% depending on the company’s size and resolves around 90% of IT issues, saving time and resources.

PEMEX is the first company to use the MyIT application, and it has an IT user base of 75,000. In addition, BMC signed a deal with ExxonMobil and Credit Suisse. The company boasts of more than 25,000 customers globally, with around 100 companies using BMC products across the world. Due to its large customer base, increased demand, and its IT user base, the company’s revenue is expected to increase from $2.1 billion in 2012 to $2.20 billion in this year and $2.32 billion next year.

Divestiture program for share repurchase

Hess’ Bakken Shale posted total production of 65,000 million barrels of oil equivalent per day, or mboed, up 55% year-over-year, in the first quarter of this year. As Bakken Shale is cost effective and rich in oil resources, the company has increased its production. To ramp up production, it is currently engaged in pad drilling. In first quarter, it completed the drilling of 30 wells and plans to drill 175 wells by end of this year. With this, the company expects to raise its production from 65,000 mboed to 70,000 mboed this year.

Also, Hess has announced a share repurchase program which will commence in the second half of this year. For this program, it is exiting from its under-performing businesses. The company has agreed to sell some part of its business in the Eagle Ford shale for $265 million and 100% stake of its Russian subsidiary, Samara-Nafta, for $2.05 billion.

The total proceeds from this sale are expected to be more than $7.5 billion. Of these, $2.5 billion will be used to repay short-term debt, $4 billion for the share repurchase program, and the remaining will be utilized for reducing debt, improving the balance sheet, increase liquidity, and to accelerate dividends. This asset sell-off program will continue through the end of next year.


Expansion and acquisition will strengthen Delphi’s position in China, as well as support the growth of multiple company segments, providing a strong opportunity for revenue.

Growing adoption of MyIT by companies will increase BMC’s customer base. This will lead to the generation of high revenue.

Hess’ share repurchase program will boost investors’ confidence in the company and the divestiture program will help sustain the company in the long run.

Therefore, I recommend a buy for all three stocks.

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Shweta Dubey has no position in any stocks mentioned. The Motley Fool owns shares of BMC Software. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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