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. Australian 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%

September 2018 Performance

September turned out OK considering that I puked out my Short Put position in Rent A Center (Ticker: RCII). As you know Rent A Center is in the process of being acquired by Vintage Capital. Vintage Capital is a private equity firm and also holds a majority stake in Buddy’s Home Furnishing, another rent to own biz. Even though there are overlap between many of the Rent A Center and Buddy’s store locations, I did not believe the FTC would issue a Second Request. Buddy’s only has ~ 300 stores and retail is already a highly competitive sector. The FTC is clearly zeroing in on the type of customers that rely on these rent to own biz, which I find a bit surprising. Second Request is time consuming and the eventual outcome may result in the FTC rejecting the deal. I don't have a good fuzzy feeling with Rent A Center.

The long positions continue to perform well with VISA (Ticker: V), MasterCard (Ticker: MA), Constellation Brands (Ticker: STZ) and Sanofi (Ticker: SNY) generating positive gains for September. While Alibaba (Ticker: BABA), Apple (Ticker: AAPL) and Qiagen (Ticker: QGEN) delivered negative returns. 

There’s been a lot of recent IPO activity and I decided to enter the IPO game. I was able to get allocations in a few shares of Elanco (Ticker: ELAN), Eli Lilly’s (Ticker: LLY) animal biz spin off. I really like these spin off plays as these companies are often run inefficiently and being public allows these companies to really flourish. Seriously, who came up with the awful name: Elanco!?

Now onto my merger arb plays… Still have Short Puts in CA Technologies (Ticker: CA) and SodaStream (Ticker: SODA). I can see CA Technologies closing by the end of October if the EU gives their blessing. SodaStream looks on track with the HSR decision coming soon. SodaStream still requires a number of regulatory approvals so an early 2019 closing is likely. The second half of the year has been very challenging with the merger arb plays… definitely not for the faint of heart.  

I’m just looking forward to the upcoming earnings release on October 4^th from Constellation Brands. I believe the earnings should be fine with the Mexican beer biz continuing to perform well. We’ll see soon…

2018 Performance = +19.75% 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%

August 2018 Performance

August turned out be a wild ride. I was quite surprised that my portfolio was still able to generate a healthy return with Constellation Brands (Ticker: STZ) taking a hit with their investment in Canopy Growth (Ticker: CGC) and my failed arb play with iKang Healthcare Group (Ticker: KANG). I guess a little diversification does help as Apple (Ticker: AAPL), MasterCard (Ticker: MA) and VISA (Ticker: V) delivered strong returns during the month.

So obviously the big news is the $4 billion equity investment in Canopy Growth by Constellation Brands. They are certainly going all in with weed and they definitely paid a high high price. The market didn’t like the news and the shares promptly declined to ~ $200. Constellation Brands will be taking on significant debt to finance this investment and there will be execution risk as the market is not well defined. I take a long term view in Constellation Brands and do believe this investment will pay off. They will be essentially creating new markets from beverages to consumables. We’ll get a glimpse of this market as Canada legalizes recreational weed use in October. I’ve been waiting patiently to add to Constellation Brands and this was the opportunity I was waiting for.

I did try to get cute with playing iKang Healthcare as a merger arb play and promptly blew up on me as a large percentage of investors are seeking appraisal rights. Now it’s up to the courts to determine a fair price for these particular investors. The parent can now call off the deal if they determine that the price they have to pay is too high. This will likely close, but I’m not comfortable with the risk. Regarding other merger arb plays, I’m currently involved in Rent A Center (Ticker: RCII), CA Technologies (Ticker: CA) and SodaStream (Ticker: SODA) via options.

That’s a wrap for August…

2018 Performance = +20.47% 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%

Edit: Updated August numbers after reviewing brokerage statement (calculating value of outstanding options can be tricky sometimes).

iKang Believe It!

On Monday I initiated a position in iKang Healthcare Group (Ticker: KANG), which is going private for $20.55 ($20.60-0.05 ADR fee). The shareholder vote is scheduled for August 20^th. This appeared to be a low risk arb play from my initial research. Yesterday after the market close, the company announced that it had received a notice of objection from ~ 32% of the total issued and outstanding shares. This basically means that these shareholders are seeking appraisal rights under the Cayman Island law, which is where the company is incorporated. The merger agreement contains a condition that the holders of no more than 15% of the total issued and outstanding shares can seek appraisal rights. The company will need the Parents blessing to waive this condition. I was totally blindsided by this news. Apparently lots of institutional investors are now going this route to obtain a higher take out price after recent successes in extracting higher prices with companies incorporated in the Cayman Islands. Bottom line, Not Good… I thought this one would be smooth sailing with an easy approval vote and closing by the end of September. That’s no longer the case. I bailed out today generating a loss of ~ 10% (this was a ~ 7% position). It’s been really challenging with the merger arb plays lately! To say the least...