Larry Robbins of Glenview Capital Management likes hospitals, unlocking eBay Inc (NASDAQ:EBAY)’s value and he briefly explained two new investments in Teradyne, Inc. (NYSE:TER) and Cadence Design Systems Inc. (NASDAQ:CDNS). Speaking at the Invest for Kids Conference in Chicago, the fast-talking youth hockey coach draped his presentation with images of deep dish pizza, Chicago sports metaphors for investments and humor.
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Larry Robbins on eBay
The well-known hedge fund manager says eBay has three businesses: the ecommerce shopping site, the PayPal payments business and its third business, hording $15 billion in cash. Investors expect that money to be put to good use, not sitting on the company’s balance sheet, he said, noting that companies that buy back their own stock are four times as profitable as the S&P 500 average.
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He said eBay’s board of directors and management saw the light of breaking up the company, reversing their previous position, when they realized investors were upset at the lack of value creation and would likely vote them out at the next shareholder’s meeting. “Directors can get socially embarrassed by getting voted off the board.”
The eBay story is a perfect divorce allegory, Robbins, who recently got married, said. “Once they are separated there is one company who will focus on spending and another company that will focus on payments,” he said to laughter. “Post-divorce the odds of getting lucky increases. The companies when separated will be more attractive to another suitor and could get into a beneficial takeover relationship” that would boost the stock price.
In regards to the scare that Apple entering the e-payments space could jeopardize PayPal’s business, Robbins has seen that movie. “Being scared that Apple Incc. (NASDAQ:AAPL) is entering mobile payments is going to damage PayPal is like being scared at the Halloween 16 movie sequel. People have seen this before.”
Larry Robbins believes buying EBAY gives you the opportunity to buy two great businesses at a cheap price. Once they separate businesses, marketplace will lever up to 2x net debt. Allow for them to buy ~22% of the PF company. Robbins believes they can handle higher leverage of 3x – 4x.
EBAY shares are buying opportunity after the event guys left the stock for dead when they ran into their own troubles last month (Shire/Ebola/Fannie).
After the split, either company could do a SA/JV or be a takeout candidate. A Robbins slide mentioned GOOG, FB, V, AMZN, MA, or AXP as potential PayPal suitors. BABA or GOOG could be auction business suitors.
Larry Robbins other ideas
In addition to being a long term holder of eBay, Robbins likes Tenet Healthcare Corp (NYSE:THC). He says hospitals are insulated from politics for many reasons, not the least of which is the average Congressional district has an average of 11 hospitals that are typically the largest jobs providers. But he also like hospitals because of the acquisition benefit. Every time a hospital gets merged or acquired, it creates significant cost savings synergies to the point “you could pay a 50% premium” for one hospital to acquire another.
In regards to Teradyne, he views the new investment as buying at the bottom of a cycle – its also an oligopoly which Robbins loves in a company. – while Cadence is a software business where he sees revenue growth accelerating that is secular not cyclical.