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.

November 2018 Performance

Well, I got walloped again in November as my portfolio was not able to escape the sell-off. I’m basically in hibernation mode with a ~ 13% cash position. I did come out of the cave today by initiating a position in Tesaro (Ticker: TSRO) via short puts, which is being acquired by GlaxoSmithKline (Ticker: GSK) for $75.00 in cash. This is the type of deal I like, a tender offer situation with low antitrust risk. I’m going to keep this post short as there really is nothing else new to report…

  

2018 Performance = +5.96% 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%

October 2018 Performance

October was simply an awful month with my portfolio generating a net loss of 8.78%. Nothing worked for me at all and I have to admit that my confidence was shaken a bit. I had a decent position in CA Technologies with short Puts and I fell for the fraudulent memo leak by closing out my position at a nice loss. I decided it was time regroup by going small and to slowly rebuild my confidence.

So onto my merger arb plays. I closed out my position in SodaStream (short Puts) for a small gain. I initiated small positions in Café Press and Senomyx. These were microcap companies and it was extremely difficult to build a decent position. I only managed to build a small position in both of these companies. Senomyx actually closed today and Café Press should close next week. I like these microcap merger plays as they often fall under the radar and can offer decent annualized returns with a quick closing (both of these were structured as tender offers).

Today, I initiated a small starter position in Pacific Biosciences via Short Puts. Pacific Biosciences is being acquired by Illumina for $8.00 per share in cash. Pacific Biosciences is currently trading at ~ $7.50, which gives you a gross spread of ~ 6% (~12% annualized return based on a closing in 6 months). I don’t see much of a regulatory risk in this deal as Pacific Biosciences is essentially a tiny fish in the sequencing space. The big players are Illumina and Life Technologies (Ion Torrent and Applied Biosystems).

I have not done much with my long positions (Apple, Alibaba, Constellation Brands, MasterCard, Qiagen, Sanofi and Visa). I continue to add to my Constellation Brands position with this recent decline. Their Q2 earnings were impressive as beer, spirits and even wine performed well. I am starting to become more bullish with their stake in Canopy Growth and the enormous market this can represent.

Hoping to just end the year green at this point!

2018 Performance = +10.92% 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%