is a macro investor: He looks at the big picture, identifies a
theme... and then homes in on the best way to profit from that
His strategy involves looking at government and central bank
policies, industry trends, and the economy -- but one tactic that
he has typically avoided is activist investing. Soros usually
leaves that for the likes of
and Dan Loeb.
However, when Soros -- with a net worth of $25 billion --
decides to become a company's largest shareholder and assume an
activist role, he should not be taken lightly.
Soros has taken on just such a role with
Penn Virginia (NYSE:
Over the years, Penn Virginia has shifted from being a pure
natural gas company to one focused on oil and higher-value
natural gas liquids. The company remains one of the
best-positioned companies in the Eagle Ford shale formation in
Soros became Penn Virginia's largest shareholder in the first
quarter of this year after disclosing a position of just over 9%
in the company. The interesting part is what
Soros said in his SEC filing
Where most activists go after management, Soros praised Penn
Virginia's management team for the job that they have done. (In
fact, he said "the financial incentives for its management team
should be enhanced" -- meaning he thinks raises are in order.)
However, Soros went on to say that he sees the stock as
undervalued and that "strategic alternatives" should be explored
to enhance shareholder value.
Soros is correct to praise the job Penn Virginia's management
team has done. One of the first companies to realize the
potential of the Eagle Ford, Penn Virginia also has interests in
the Haynesville Shale and Cotton Valley in East Texas, the Selma
Chalk in Mississippi, and the Marcellus Shale in
At the end of last year, Penn Virginia had 1,213 productive
wells, with proven reserves of 136 million barrels of oil
equivalent (BOEs). It also owns 280,400 acres of leasehold and
royalty interests. These assets could make Penn Virginia an
attractive takeover target for a larger player.
The most attractive asset in Penn Virginia's portfolio is its
Eagle Ford assets. One player in particular has been making
purchases in the Eagle Ford is
Devon Energy (NYSE:
, which purchased GeoSouthern Energy's Eagle Ford assets last
year for $6 billion in cash.
Devon's purchase covered 82,000 net acres of drilling leases
in the Eagle Ford that are producing 53,000 barrels of oil
equivalent per day. In comparison, Penn Virginia currently owns
85,900 net acres in the Eagle Ford. (My colleague Jody Chudley
a lesser-known aspect of the Eagle Ford's
Shares of Penn Virginia are trading at 29 times next year's
earnings and just 1.1 times book value. Its enterprise
value-to-EBITDA (earnings before interest, taxes, depreciation
and amortization) ratio is only 7.5.
Besides Soros and his 9.1% stake, another big name in the
stock is billionaire Ken Griffin and his Citadel Advisors hedge
fund, which owns a 6.7% stake in the company.
Risks to Consider:
Shares of Penn Virginia have already gone on quite a run due
to the potential of its Eagle Ford assets. Shares are up almost
200% in the past year. If a deal is not announced within the next
year, the stock could see some selling pressure as some
shareholders lock in profits.
Action to Take -->
Buy shares of Penn Virginia with a price target of $22 for upside
of 50%. This is based on the premium that many analysts expect
the company would command in a sale if Soros is successful in
getting Penn Virginia acquired by a larger player.
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