* Chesapeake shareholder Hawkins occasional activist
* Hawkins' value strategy has led to uneven performance
* Hawkins' fund has stake in Chesapeake since 2006
By Sam Forgione
NEW YORK, May 11 O. Mason Hawkins, whose $34
billion mutual fund firm is Chesapeake Energy Corp's
largest shareholder, is best known as a Warren Buffett-style
value investor who takes big stakes in companies and holds them,
often for years.
But occasionally Hawkins turns activist and agitates for
corporate change. His firm, Southeastern Asset Management, owns
13.6 percent of the embattled natural gas company, whose shares
are down 41 percent since Southeastern began building its stake
six years ago.
Chesapeake's board has come under fire after Reuters
publicized that the company's co-founder and Chief Executive
Officer Aubrey McClendon had borrowed $1.5 billion against
stakes he received in wells drills by Chesapeake.
Hawkins, chairman and chief executive officer of
Southeastern, sent a letter to Chesapeake's board on May 7
urging them to be open to an approach by a potential acquirer. A
few days earlier, Hawkins applauded the board's decision to
strip McClendon of his title as chairman.
Just a few months ago, Hawkins was praising McClendon for
his ability to monetize the company's oil, gas and land assets.
Yet with shares of Chesapeake plunging about 10 percent
since the initial Reuters story on April 18 about McClendon's
loans, Hawkins is emerging as the voice of the Oklahoma-based
company's beleaguered stockholders.
He took a similar activist strategy with Olympus,
the Japan-based optics manufacturer, after it got embroiled in
an accounting fraud scandal last October.
But even before the disclosure about the loans to McClendon,
shares of Chesapeake had fallen 54 percent since September 2008
as a result of a collapse in natural gas prices.
Hawkins' strategy of focusing on company fundamentals and
seeking out stocks he believes are undervalued is one pioneered
by Buffett at Berkshire Hathaway. But the returns of
Hawkins' flagship Longleaf Partners Fund, which holds
Southeastern's Chesapeake stake, have been anything but
Buffett-like in the past five years.
Hawkins declined to comment on Chesapeake or his funds'
performance, but emailed: "We appreciate your interest."
Hawkins, 64, was raised in Georgia and currently runs
Southeastern out of Memphis, Tennessee. He is an acolyte of
renowned value investor Benjamin Graham - also Buffett's idol -
and donated $1 million to the Graham-Buffett Teaching Endowment
fund in 1997.
Hawkins, an avid pheasant hunter, is known for his in-depth
research into company management and told business students in a
2005 speech that he reviews "everything from their college days
to their current CEO status."
There is little biographical information on the company's
website and he is reluctant to speak to the press, rarely giving
Longleaf Partners Fund, which has $8.63 billion in assets
and invests in companies as diverse as Walt Disney Co,
construction company Vulcan Materials and Abbott
Laboratories, has a five-year annualized return that is
down about 2.42 percent. By comparison, mutual fund research
firm Lipper reports other funds with similar investment styles
are down just 0.4 percent over the same period.
Over the past five years, Berkshire Hathaway class A Shares
are up 12.6 percent.
This year Longleaf is up 8.37 percent, modestly trailing the
8.49 percent gain in the S&P 500.
Longleaf suffered a big loss in 2008, during the height of
the financial crisis, when it plunged 50.6 percent. Meanwhile,
the S&P 500 and the fund's main competitors were down
about 37 percent, according to Lipper data.
But Longleaf bounced back in 2009 with a 53.6 percent return
that dominated its peer group.
Fund experts and Hawkins admirers say lagging performance
from time to time is to be expected with a fund that goes after
beaten down stocks and generally invests in no more than 25
companies at a given time.
"If you're a value investor like they are, you're going to
have times where you're very much out of step with the market.
And they have been out of step with the market for the last
couple of years," said Don Phillips, president of fund research
John Rogers, the head of Ariel Investments, said "the
short-term performance is totally irrelevant to me," and likened
Hawkins' letters to shareholders to those of Buffett and PIMCO
co-founder Bill Gross. Rogers, whose mutual fund firm follows a
similar strategy to Southeastern's, said Hawkins' funds are
offered in the 401K plan for Ariel's employees.
Hawkins' faith in Chesapeake had not waned much until
Longleaf bought over 20 million shares of Chesapeake in the
second quarter of 2006 and has steadily increased its exposure
ever since, except for a 13-million share reduction in the first
quarter of 2008, according to regulatory filings. As of May 2,
2012, the fund owned almost 90 million shares.
Over that period, Chesapeake's stock has plunged 41 percent.
Hawkins, in his 2011 letter to investors, generally praised
McClendon's stewardship of the company.
"Aubrey McClendon, co-founder and CEO, has been
controversial but has consistently monetized assets at far above
cost," Hawkins wrote.
PUSH FOR CHANGE
With Olympus, Hawkins only went activist in late October
after the accounting scandal broke, eventually calling in
November for key members of the company's board to resign or be
In March, Southeastern reduced its stake in Olympus to 3.95
percent from 5.09 percent, after its proposal for a new lineup
fell short of getting sufficient shareholder support.
Hawkins has also signaled that Southeastern may push for
change at Vulcan Materials Co and Martin Marietta Materials Inc
by filing 13D stakes in each this year, which give
shareholders special voting and investment power under
Securities and Exchange Commission rules.
Those who know Hawkins say that his activism stems from his
conviction in his holdings rather than a desire to seek out
"On the scale of those that just go out and raise money to
be activist, he's not on that scale at all," said Mario Gabelli,
chairman and chief executive officer of GAMCO Investors Inc.
Gabelli added that Hawkins doesn't advertise his activism,
but adopts it when he senses "something wrong in the company in
terms of corporate governance."