Sold Boston Beer

Investing is all about being objective and not letting your emotions take control of the situation. Yesterday, I sold a small position in Boston Beer (Ticker: SAM) in my retirement account because of its revenue short fall. Even though I still generated a small gain of ~ 13%, the paper gain was obviously much higher at one point. I enjoy their product (Angry Orchard) and was planning to hold for a while, but fundamentally it was a really bad quarter and they had to guide down for 2015. I listened in on the earnings call and I didn’t like what I heard as the company was facing more competition, decreasing market share (Angry Orchard), slowing growth, higher transportation costs, etc… Also this stock was selling at a high valuation. This was in contrast to Constellation Brands (Ticker: STZ), which was and is firing on all cylinders with its beer biz. Constellation Brands has had a great run and continues to be my largest holding.

Sold Salix Pharmaceuticals

I took my profits in Salix Pharmaceuticals (Ticker: SLXP) today @ $156.28 on talk that Valeant (Ticker: VRX) was close to making an offer. I was able to generate a net gain of 2.30% over 4 day period. This was a speculative gamble on my part. It was time to take a quick profit and move on. The merger arb space is fairly quiet right now so just need to be patient so a nice opportunity shows up.

A Little Salix Pharmaceuticals

Yesterday, I picked up a few shares (~ 5% position) in Salix Pharmaceuticals (Ticker: SLXP) at $152.77. So far we know there are at least three potential acquirers: Valeant (Ticker: VRX), Shire (Ticker: SHPG) and Endo (Ticker: ENDP). I view the likelihood of a deal as high and so far all signs are pointing to Valeant as the likely acquirer. I can see a 10% premium from the current price. This is a pure speculative play on my part so we’ll see…

Hospira Arb Play

Not much action in the special situations / merger arb space… I initiated a position in Hospira (Ticker: HSP), which is being acquired by Pfizer (Ticker: PFE) for $90.00 in cash. I’m playing this deal via Short Puts. I sold the August 2015 $80 Puts at an average price of $1.00. The companies anticipate the deal closing in the second half of this year. It too early to narrow down the closing time frame, but I don’t see any anti-trust concerns. Pfizer is essentially buying a specialized generic drug company. So for the moment, this is the only merger arb play in my portfolio (besides the Casa Ley CVR received from Safeway deal).

January 2015 Performance

The market volatility continues into 2015, which really shouldn’t be a surprise… January turned out ok for my portfolio. I was able to generate a net gain of +3.4%, which can be attributed to the closing of the merger arb play in Cubist Pharmaceuticals. The strong earnings performance of my largest holdings: Constellation Brands (Ticker: STZ) and Apple (Ticker: AAPl) also helped. Everything kind of clicked in January, but I would not expect this kind of performance going forward. It’s not often that I will find such a compelling merger arb play such as Cubist Pharmaceuticals.

Thanks to my readers for reminding me about the Safeway CVRs! I was playing Safeway via short Puts and did not pay much attention to the potential CVR payout. I bought a bunch of Safeway last Thursday at an average price of ~$35.16. With the anticipated cash payout of $34.92, I will be getting the Casa Ley CVRs for ~ $0.237. The company has stated that the fair market value of the Casa Ley CVR is $1.0149. That’s a potential ~ 300% gain if they are able to sell Casa Ley at the fair market value. The downside is that they have up to 3 years to sell Casa Ley so I’ll need to be a bit patient. The plus side is that there is a significant margin of safety and of course a nice potential payout.

I have a few merger arb plays on my radar, but still doing some work on them. That’s it for now…

2015 Performance Year to Date = +3.4% with the running monthly returns as follows:

January +3.4%

Cubist = Done Deal

As expected, Merck (Ticker: MRK) completed its tender offer for Cubist (Ticker: CBST) today. I’m looking for the cash to hit my account by this Friday, January 23rd. My overall net gain will be 3.30% (annualized return of 38.24%). I went all in on this deal as this position comprised of ~ 60% of my portfolio. It’s not often these days that I go all in, but the odds were there in terms of the deal closing. I’ll just wait patiently for a good risk reward opportunity to present itself.

Tendered Shares in Cubist

Yesterday, I tendered all my shares in Cubist (Ticker: CBST) and looking for this tender offer to close next week on January 20th. As you know Merck (Ticker: MRK) is acquiring Cubist for $102 in cash. I have a large position in Cubist and have been purchasing shares up to yesterday as the annualized returns continue to look very attractive (~ +20% annualized). I’m modeling the tender offer closing on January 20th with the cash hitting the account by Friday, January 23rd. My experience with these tender offers is that the cash hits your account in a day or two after closing.

I also have some short Puts on Cubist, which I purchased on the day of the merger announcement. Needless to say it was a wild ride with those Puts when Cubist dropped on the adverse patent ruling. The short Puts, which I sold for $0.75 jumped to ~ +$5.00. Fortunately I had sufficient equity in my account and wasn’t forced to liquidate to meet a margin call. Those same Puts are now trading around $0.30 and I plan to let those expire. You really have to manage your risk when dealing with options. You’ll never know when you will have one of those black swan moments.

Some other smaller arb plays that I have been involved in were Avanir Pharmaceutical, which closed earlier this week. I had a few short Puts on that one. One other arb play that I expect to close by the end of this month is Safeway (Ticker: SWY).