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%

May 2018 Performance

The strong performance in May can be primarily attributed to the closing of AveXis, which was successfully acquired by Novartis (Ticker: NVS). I played this deal aggressively via common stock and short Puts. This deal took only 37 days to close, which was one of the quickest closings that I can recall. I had a strong conviction in this deal closing and talk of potential antitrust delays provided a nice risk reward opportunity.

The following stocks were also positive contributors in May: Apple (Ticker: AAPL), Alibaba (Ticker: BABA), Mastercard (Ticker: MA), Qiagen (Ticker: QGEN) and Visa (Ticker: V). On the other hand Sanofi (Ticker: SNY) and Constellation Brands (Ticker: STZ) dragged down the May performance. As I have mentioned before, I remain cautious with this market and have a ~ 18% cash position.

I’m really late to the game with Monsanto (Ticker: MON), but I’ve been selling a few of the longer dated Puts. It’s not much of a premium, but it’s pretty much a risk free play at this point. Ideally, Monsanto closes by mid-June in time for the June options expiration (accelerated expiration). The more likely scenario is that these long dated options will expire in July expiration with the assumption that Monsanto closes by the end of June.

That’s about it for the May recap…    

2018 Performance = +14.62% with the running monthly returns as follows:

January +2.80%

February +2.82%

March -0.03%

April +2.10%

May +6.25%

April 2018 Performance

April turned out surprisingly well considering the market volatility. The following growth stocks: Mastercard (Ticker: MA), Visa (Ticker: V) and Constellation Brands (Ticker: STZ) contributed to some positive gains for the month. The big gain came from Avexis (Ticker: AVXS), which is being acquired by Novartis (Ticker: NVS) for $218 in cash. I have a good size position in Avexis via common stock and short puts. I did get a bit overboard and the size of the position went past my comfort zone. I plan on tendering the common and letting the short Puts expire. This was one of those situations where I liked the odds and went pretty much all in. I’m hopeful the tender closes on May14th.

I’m hoping to see a few more pharma / biotech tender plays. It’s really been an interesting year as the majority of my gains this year were derived from merger arb plays. My goal is to focus on high probability merger plays and hoping to avoid any Rite-Aid like disasters (which I had the pleasure of experiencing last year). So I’m basically taking things slow and steady…

2018 Performance = +7.89% with the running monthly returns as follows:

January +2.80%

February +2.82%

March -0.03%

April +2.10%