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Teekay LNG ( TGP )
On October 4th, Teekay LNG announced they were being acquired by Stonepeak, an Alternative Investment firm specializing in infrastructure and real assets, for $6.2B, or $17 per share. Teekay LNG is one of the largest operators of LNG vessels. We were displeased with the offer, and post the SEC Filings detailing the reasoning behind the transaction; we became even more upset. Teekay LNG is 41% owned by its parent company Teekay Corp, which approved the transaction before minority shareholders voted. 9% of the remaining shareholders needed to approve the transaction, making it a formality. Our reason for owning TGP was relatively simple. We had a decent business with long-term contracts, generated an 8%-12% ROE, were in the process of deleveraging, and had an 8% dividend yield. We believed the business’s fair value was in the mid $ ’20s and got paid a dividend while we waited.
There were several problems with the process of the sale including, 1. Management’s primary rationale in approving the transaction was “immediate liquidity on closing.” TGP is a publicly-traded stock that averaged over 1m shares traded per day, or $16m notional. Anyone (excluding the largest ETF’s/Mutual Funds) could get out of the stock in a few days without materially affecting the price. 2. The due diligence done by Investment Banks to source the right buyer appears to be poor. TGP started the process of selling themselves in January 2021 when the stock was ~$13.
Only two strategic buyers were contacted, with the remaining 20 or so being financial buyers. The highest price TGP ever received was an $18 preliminary bid in early 2021 from Stonepeak. Since that initial offer, the company’s business outlook improved due to increased demand for natural gas, and the company continued to pay down debt. How the purchase price declined during that period baffles us. Our opinion is that TGP should have continued its path, reducing debt, paying off preferred equity, and selling non-strategic parts of the business. We were wrong in thinking TK Corp. would do what’s best for minority shareholders given their substantial stake. Our solution is to better understand potential conflicts of interest before purchasing securities.
We originally purchased Intel in August 2020 due to the substantial FCF generated and $10B+ yearly in R&D and Capex invested over the past several years. The technology lead it once had was gone as competitors such as TSMC, AMD, and others in the CPU and Data Center group surpassed Intel. Even though Intel had years of business underperformance because of delays in releasing new products, we believed the amount of capital spent at the company would allow them to catch up and reclaim market share. We knew this type of turnaround, given the company’s size, was not going to be quick or easy.
However, we believed the price offered more than compensated us for the risk of failing once again.
In January, Intel announced Pat Gelsinger as the new CEO. We were happy with the hire as Pat was Intel’s original CTO, helping Intel become the dominant player in the industry it once was.
We became increasingly worried that Pat was not the right guy in the months and quarters following the announcement. Mr. Gelsinger appears to be viewing the world through rose- colored glasses (though we do recognize the CEO is the heart and soul of the organization, so we understand to a certain extent why he talked the way he did). Intel’s FCF gave us some comfort that it could afford to continue investing in new products while repurchasing shares or making acquisitions.
In the most recent quarter, the company announced an ambitious spending plan. In 2022, Intel expects to spend between $25-$28B in capital expenditures plus another $15B in R&D, with the potential to spend more if an opportunity presents itself! The FCF cushion we once had is likely gone for the next few years as Intel bets the farm to return to a market-leading position. While the future for Semiconductors is very bright, and end markets such as Data Centers and Autonomous vehicles are growing rapidly, we worry about the potential ramifications should INTC’s investments prove to be ill-fated like the past decade. Understanding what INTC will earn next year is a challenge in and of itself. Thinking about what it could be in 3-5 years is likely nothing more than a guess. With our downside protection gone and uncertainty surrounding the business’s future, we decided to sell the position. We are […]
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