Jeff Ubben Quits ValueAct; The Humbling Of Exxon

Whitney Tilson’s email to investors discussing the humbling of Exxon; Jeff Ubben quits ValueAct for social investing; inside eBay’s bizarre campaign against a blog critic; the enduring enigma of Costco’s $1.50 hot dog and soda combo.

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Q1 2020 hedge fund letters, conferences and more

The Humbling Of Exxon

1) In my February 3 e-mail, I analyzed the financials of energy giant ExxonMobil (XOM) and what I found wasn't pretty.

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The company is suffering from declining revenue, net income, and operating cash flow... and this is combined with rising capital expenditures. The result is insufficient free cash flow to cover the hefty dividend payments, which are instead funded with rapidly rising debt and asset sales. Worst of all, ExxonMobil tries to obfuscate this reality with highly misleading disclosures to investors. I concluded:

ExxonMobil looks like a classic value trap – a melting ice cube that doesn't come within a country mile of covering its dividend, which it will likely eventually be forced to cut (though not for a few years I suspect)...

For more on this, I recommend this in-depth Bloomberg story, The Humbling of Exxon. Excerpt:


The coronavirus has laid bare a decade's worth of miscalculations. Exxon missed the wild and lucrative early days of shale oil. An adventure in the oil sands of Canada swallowed billions of dollars with little to show for it. Political tensions doomed a megadeal in Russia. Exxon ended up spending so much on projects that it has to borrow to cover dividend payments. Over a 10-year period, Exxon's stock has declined 10.8% on a total return basis, which includes dividends. The company's major rivals all posted positive returns in that period, except for BP Plc, which had the Deepwater Horizon spill in the Gulf of Mexico in 2010. The wider S&P 500 Index has returned nearly 200%.

Jeff Ubben Quits ValueAct For Social Investing

2) I met Jeff Ubben a few times when he spoke at my Value Investing Congresses years ago. He always struck me as a very smart, good guy, so I read this article in the Financial Times with interest: Jeff Ubben quits ValueAct for social investing. Here's a summary in DealBook:

Jeff Ubben's plan to end finance as usual

One of America's top activist investors said that he's leaving the $16 billion hedge fund, ValueAct, that he has turned into a major force in corporate boardrooms. His reason is, perhaps, even bigger news.

Best regards,