During Q4 2018, Third Point reduced its stake by ~33% in healthcare company Baxter International (BAX). It is still the largest single holding for the fund, accounting for ~28% of the total portfolio at the end of December 2018. Third Point initiated its position in BAX in Q2 2015, and it has been its largest position since Q3 2015.
In the investor letter, Third Point mentioned, “Baxter has generated more profits than any investment in our history.” It also expects the company to keep on delivering returns based on operational excellence, capital allocation, and portfolio optimization. Baxter remains Third Point’s high conviction bet based on the above-mentioned factors, which in its opinion, should drive earnings growth and free cash flow generation.
The fund also increased its stake in Campbell Soup (CPB) by 16.7% during the fourth quarter. CPB is its second-largest holding. Third Point has an activist stake in CPB. In October 2018, Dan Loeb went after Campbell Soup’s board for poor decisions and was lobbying to oust all 12 of its directors. Loeb, however, settled for two board seats and a say in choosing CPB’s next CEO.
Third Point’s dynamic with Campbell Soup
In the letter, Third Point stated that their dynamic with the company changed as soon as the proxy contest ended. The fund is now looking forward to the company to repair its balance sheet, execute an operational turnaround, and explore options to create value for shareholders.
Higher interest expenses driven by higher debt related to funding the company’s recent acquisitions are expected to drag down CPB’s earnings. Cost headwinds and higher interest expenses are also expected to remain a drag on the bottom lines of other major food companies including General Mills (GIS) and J.M. Smucker (SJM).