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...

July 2018 Performance

July was a month where I really did nothing and the portfolio just managed itself into a gain of +1.53%. The majority of the gains can be attributed to my long positions in Apple (Ticker: AAPL), Qiagen (Ticker: QGEN), MasterCard (Ticker: MA), Sanofi (Ticker: SNY) and VISA (Ticker: V), while Alibaba (Ticker: BABA) and Constellation Brands (Ticker: STZ) continued to drag down the performance. The merger arb plays also had a minor positive contribution with positions in JA Solar and Foundation Medicine.

I just want to thank Merger Pie for a heads up on the pending closure of JA Solar. This was a free money play as there was still a nice little spread with days to closing. The other merger arb play that I was involved in for July was Foundation Medicine via Short Puts. I did not have a large position in Foundation Medicine as the maintenance requirement was just too high. Foundation Medicine’s deal with Roche just closed and the options will be accelerated to an August expiration.

I have added to my Short Put position in Rent A Center (Ticker: RCII). The company just posted another strong earnings report as they continue to successfully execute their turnaround plan. I’m modeling a close by the end of November with Vintage Capital. Rent A Center would be flying high right now if it weren’t for the Vintage Capital buyout. It’s a heavily shorted stock and with this strong earnings report, the shorts would be squeezed pretty hard. I would never consider investing in a rent to own biz until this special situations showed up. It’s actually a very nice biz model that unfortunately preys on the people, who really can’t afford to purchase the merchandise. These people will just make a few monthly payments and the company will repossess once they are late with their payment.

That’s all I have for July…


2018 Performance = +14.63% 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%

June 2018 Performance

I was able to easily generate a net loss of 1.51% for the June. The bulk of the loss can be attributed to my trading debacle in NXP Semiconductors (Ticker: NXPI) and the earnings short fall in Constellation Brands (Ticker: STZ). I initially bought NXP Semiconductors with the expectation of a fairly quick approval by the China, but the news reports of an imminent approval did not pan out. I exited the NXP Semiconductors with a nice loss. Constellation Brands just reported earnings with the bottom line missing estimates. I am not too concerned with Constellation Brands as the top line generated healthy growth. Increased marketing and transportation cost negatively impacted the bottom line for Constellation Brands. Overall, I was really disappointed on how I handled the NXP Semiconductors trade as I had no edge at all.

So what’s new? I picked up a few of the long dated short Puts on Rent-A-Center (Ticker: RCII), which is being acquired by Vintage Capital for $15 per share in cash. Vintage Capital has been in pursuit of Rent-A-Center for over a year. The acquisition of Rent-A-Cent would complement their other rent to own company, Buddy’s Home Furnishings. It is a private equity deal and they do have a tendency to bolt when things start going south. I don’t see it in Rent-A-Center as they’re in the early innings of a turn around with their free cash flow showing a nice increase. This is almost like a strategic deal by Vintage Capital. Vintage Capital expects this deal to close by the end of the year.

And that's it for June...

2018 Performance = +12.90% 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%