March 2019 Performance

The strength of this market continues to amaze me. The market just takes bad news in stride and just climb a wall of worry. I really did nothing for March other than dabble with a small special situation trade with Eli Lilly’s (Ticker: LLY) spin off of Elanco (Ticker: ELAN). The portfolio was able to generate a positive gain of 5.06% for the month.

In the merger arb space, I’m still playing Sparks Therapeutics (Ticker: ONCE) via Short Puts and looking for a resolution this week. If all goes well with the antitrust review, this tender offer could possibly close this week. I still cannot see any antitrust issues with Roche’s (Ticker: RHHBY) acquisition of Sparks Therapeutics.

The other big news this week is Constellation Brands (Ticker: STZ) earnings release on Thursday. The stock sold off on the last earnings report due to weakness in the low end wine segment. Maybe they will announce the divestiture of their low end wine portfolio with this earnings report. I continue to like this company based on the anticipated free cash flow.

That’s all I have to report…

2019 Performance = +17.00% with the running monthly returns as follows:

January +7.4%
February +3.7%
March +5.06%

February 2019 Performance

I was able to squeak out a gain in February despite the negative performance in Constellation Brands, which is the second largest position in the portfolio. Investors didn’t like what they heard with Constellation Brands (Ticker: STZ) at the CAGNY conference and sold off the stock. I didn’t hear anything concerning with Constellation Brands during the CAGNY conference other than a slight down tick in beer growth, which is expected. I like the fact they are focusing on returning ~ $4.5 billion to investors through share buy backs and dividends over the next 3 years. Constellation Brands is a money making machine with significant upside if Canopy Growth works out.

In terms of the merger arb game, I’ve been building a position (long common and short puts) in Spark Therapeutics (Ticker: ONCE), which is being acquired by Roche (Ticker: RHHBY) for $114.50 in cash via a tender offer. This deal should close in early April. I see no antitrust issues so this one should be smooth sailing with a closing within ~ 45 days of announcement.

The way the market is rocketing up, I just hope I can keep pace. I’m not going to chase anything, but just continue to focus on high probability arb plays and let my growth stocks do their thing.

2019 Performance = +11.37% with the running monthly returns as follows:

January +7.4%

February +3.7%

January 2019 Performance

January started out as a bust for me, but for some reason or another came back nicely to finish off the month. The month started with the Apple earnings warning, which was the shot heard around the world. Then a few days later, Constellation Brands reported disappointing earnings and guidance, which sank the stock. I have decent positions in both of these stocks so I definitely felt the pain. I actually added to the Constellation Brands position during the selloff. Sometimes, it’s best to buy when you feel sick to your stomach. In any case, both Apple and Constellation Brands ended up nicely for January. All my other long positions (Alibaba, Mastercard, Qiagen and Visa) performed well in January. Sanofi was the only negative performer.

I’m currently involved in two arb plays: Tesaro and Loxo Oncology. Tesaro was acquired by GlaxoSmithKline for $75 per share in cash. I played this via long stock and short puts. Tesaro recently closed and the short put options were accelerated to February expiration. I also played Loxo Oncology, which is being acquired by Eli Lilly for $135 per share in cash via short puts and this is moving smoothly toward a mid-February close. I was fairly aggressive in both of these merger plays because they were both structured as tender offers and did not anticipate any antitrust issues, which equates to a fast closing.

I have to learn to just sit tight and wait for the right opportunities to show up. Last year, I found myself forcing some bad trades because I felt I had to be in the market.This game is a constant learning experience...

2019 Performance = +7.4% with the running monthly returns as follows:

January +7.4%

Tesaro: All Antitrust Approvals Received

All of the required antitrust approvals have been received. This deal is pretty much a done…

From today’s filing: "On January 16, 2019, the FCO issued a clearance decision with respect to the Offer and the Merger, and the FCA provided a (declaratory) confirmation of clearance with respect to the Offer and the Merger. Accordingly, the portion of the Offer Conditions relating to approval by the FCO and the FCA of the transactions contemplated by the Merger Agreement has been satisfied."

US Antitrust Approval Received for Tesaro

One down and two to go with the antitrust approvals for GlaxoSmithKline’s acquisition of Tesaro. US antitrust approval was received, which should not be a surprise. Now just waiting for the German and Australian antitrust approvals.

Form today’s SEC filing: “On December 31, 2018, at 11:59 P.M., New York City time, the applicable waiting period under the HSR Act expired. Accordingly, the portion of the conditions of the Offer relating to the expiration or termination of the waiting period under the HSR Act in respect of the Transactions has been satisfied.”

2018 Performance

Let’s just say what a year... I ended the year down 4.11%, which stinks. It’s my first losing year in recent memory. I was tracking well for the first 3 quarters and then the bottom fell out in Q4. Overall I generated a slight gain from my arb plays with decent gains from Juno Therapeutics, Bioverativ and AveXis. On the other hand I got a bit sloppy with NXP Semiconductors, Rent-A-Center, iKang Healthcare Group and CA Technologies, which pretty much negated the positive returns from the successful arb positions. Even though I was able to beat the S&P 500 (negative return of 6.2%), a loss is still a loss.

I did take a nice beating in one of my larger long positions in Constellation Brands. Ever since Constellation Brands took a majority stake in Canopy Growth, the stock has headed in a downward trajectory. Constellation Brands ended the year down ~ 27%. Other big losers include Apple (down ~ 8.50%) and Alibaba (down ~ 26.7%). What saved my portfolio were positions in MasterCard (up ~ 22.2% and Visa (up ~14.8%). Visa now makes up my largest portfolio holding surpassing Constellation Brands.

Looking at 2019, I’ll continue to keep a healthy cash position and pretty much maintain my long positions as is. I currently have one arb play and that is Tesaro, which could close in ~ 2 weeks. Other than that… I’ll be on the sidelines looking for high probability arb plays.

Hope everyone have a Healthy and Prosperous New Year!

2018 Performance = -4.11% with the running monthly returns as follows:

January +2.80%
February +2.82%
March -0.03%
April +2.10%
May +6.25%
June -1.51%
July +1.53%

August +5.1%

September -0.60%

October -8.78%

November -3.00%

December -9.50%

Annual performance for the past seven years is as follows:

2012 +61%
2013 +44.61%
2014 +29.47%
2015 +33.48%
2016 +14.61%
2017 +42.12%

2018 -4.11%

Tesaro Antitrust Filings

It looks like all of the required antitrust filings for GlaxoSmithKline’s acquisition of Tesaro has been completed:

1. US Antitrust (HSR) filed on 12/14/18 with an expiration of 12/31/18

2. German Antitrust (FCO) filed on 12/18/18 with an expiration of 1/18/19

3. Austrian Antitrust (FCA) filed on 12/18/18 with an expiration of 1/15/19

The tender offer expires on 1/14/19, which I see as a high likelihood of occurring. Could possibly see a tender extension based on the time frame in the completion of the FCO and FCA antitrust reviews. The spread has widened a bit, which is likely attributed to the overall market. Lots of other arb spreads have started widening a bit as players are in a risk off mentality.
 

Tesaro Arb Play

I really like the Tesaro arb play at this current price (~$73 and change). GlaxoSmithKline (Ticker: GSK) announced a definitive agreement to acquire Tesaro (Ticker: TSRO) for $75.00 in cash on December 3rd. The company initiated the tender offer today with the tender expiring on January 14^th. The company has stated that it plans to file for antitrust clearance on December 17^th, which would equate to a HSR decision by January 4^th. I don’t see any antitrust issues. The company does not have any scheduled clinical read outs prior to the closing of the tender offer. Of course there can be a curve ball such as adverse clinical events resulting in a clinical hold or Zejula (PARP inhibitor for ovarian cancer) being pulled from the market, which will result in a material adverse event. These are risks you face with any pharma / biotech buyouts. At the current price, you are looking at a mid-teens annualized return, which I find attractive. I am playing this deal via short puts and long common.

Edit: Company filed for antitrust clearance on December 14^th with the HSR 15 day waiting period expiring on December 31^st.