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David Abrams Plunges Into Klarman's PG&E

- By James Li

David Abrams (Trades, Portfolio), manager of Abrams Capital Management, disclosed on Monday he established a position in PG&E Corp. (PCG), one of Seth Klarman (Trades, Portfolio)'s top 10 holdings as of fourth-quarter 2018.

According to GuruFocus Real-Time Picks, a Premium feature, Abrams invested in 25 million shares for $19.39 per share on March 8, giving the stake 16.69% equity portfolio space.


Transaction details and purpose

Klarman's protege said in a Schedule 13-D filing that he and two other shareholders, Knighthead Capital Management and Redwood Capital Management, jointly held a conference call to discuss the status of PG&E's efforts to identify a new, permanent CEO to lead the company and introduce new independent directors to the board. During the call, the three shareholders mutually concurred to submit director candidate nominations to the company as appropriate.

Abrams also said his firm entered into a letter agreement last week in which Abrams Capital Management expects to respect the agreement or consensus of at least two of the three shareholders.

Company updates financial impact on wildfires

San Francisco-based PG&E said in its 2018 annual report that net losses available to shareholders were $6.9 billion for the year, compared to net income available to shareholders of $1.6 billion for the prior year. For 2018, the company recognized $14 billion in pretax charges associated with the third-party claims and other legal costs stemming from the wildfires in both 2017 and 2018.


PG&E warned its financial position, results of operations, liquidity and cash flows can be materially affected by several factors, including the outcome of the Chapter 11 cases and the utility's ability to fund ongoing operations and other capital needs. GuruFocus also lists several warning signs for the troubled company, including declining revenues and increasing long-term debt. Additionally, PG&E's Piotroski F-score ranks a weak 3 out of 9 on several negative indicators, which include lower returns on assets, current ratios, gross margins and asset turnover compared to the prior year. Based on these factors, GuruFocus ranked PG&E's financial strength 4 out of 10.

Other gurus with large holdings in PG&E include David Tepper (Trades, Portfolio) and Steven Romick (Trades, Portfolio).

See also

Klarman's top two holdings as of year-end are Twenty-First Century Fox Inc. (FOXA)(FOX) and Cheniere Energy Inc. (LNG), while Abrams' top three holdings as of year-end are Franklin Resources Inc. (BEN), O'Reilly Automotive Inc. (ORLY) and Teva Pharmaceutical Industries Ltd. (TEVA).

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Disclosure: As of this writing, the author is long ORLY.

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This article first appeared on GuruFocus.