Citadel Has a Big Short Against a Company Buffett Invested InBy
Hedge fund increased its short wager on Lanxess by 26%
Berkshire unit took 3% stake in German company this month
Berkshire Hathaway Inc.’s subsidiary General Reinsurance AG said on May 29 it bought a 3 percent stake, worth about $200 million, in Lanxess AG. The same day, Citadel disclosed in a filing that it increased the hedge fund’s short position on Lanxess by 26 percent to $150 million.
What do these two titans of investing see in Cologne-based Lanxess? On a price-to-tangible-book-value basis, a metric often cited by value investor Buffett, Lanxess is cheap. It trades at an 80 percent discount to the S&P 500 Chemicals Index.
The company is trying to become one of the world’s biggest makers of flame retardants and lubricant additives. In May it bought Chemtura Corp., which had earlier purchased Great Lakes Chemical Corp. In 1999, Berkshire took a stake in Great Lakes, which was one of its least successful investments, according to a note from Jefferies Group. Still, Berkshire seems to have a fondness for additives -- it already owns Lubrizol Corp., a Lanxess competitor based in Ohio.
Ted Weschler, one of Buffett’s deputy investment managers, has been doing a lot of work in Germany for Berkshire recently and has said publicly that he’s looking for investment opportunities there. A Berkshire unit also agreed this year to buy Wilhelm Schulz GmbH, a closely held German maker of piping components.
While Berkshire tends to hold positions long-term, Citadel, which manages more than $26 billion, may be focusing on Lanxess’s short-term challenges. On May 11, the chemical company said it anticipated its growth rates to slow in the second half after a strong performance in the Asia-Pacific region last year.
Shares of Lanxess, which surged to a four-year high on May 10, dropped 3.8 percent on the company’s forecast. They jumped 8 percent on the May 29 news of Berkshire’s investment and have since retreated a bit to 66.60 euros.
Spokespeople for Citadel and Lanxess declined to comment. Buffett didn’t immediately respond to a request.
— With assistance by Noah Buhayar