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%

AveXis Merger Arb

I initiated a position in AveXis Inc (Ticker: AVXS) via common and short Puts. On April 9th Novartis (Ticker: NVS) announced the acquisition of AveXis for $218 per share in cash via tender offer. The tender offer will officially commence ~ 10 days from the date of the merger agreement. I am currently modeling this deal to close by June 15^th. The reason I like this deal so much is that the risk of this deal breaking due to an adverse event from the clinical trial is pretty much nil. During the conference call an analysts asked a question regarding the impact on the merger from an “unexpected event in one of the clinical trials that questions the safety potential of the product”. Novartis’ Head of Business Development responded with the following: “So in regard to unexpected events, we do not have an out, if there is an event opportunity.” I’ve never seen this before where the acquirer has no outs at all… AveXis is currently trading at $211.14, which still presents an attractive annualized return of ~ 17% (assuming a close by June 15^th).

March 2018 Performance

I managed to come out flat for March with a loss of -0.03%, which is not bad considering the S&P 500 was down ~ 3.1% for this period. I really did not do much in March except for letting the short Puts in Bioverativ and Juno Therapeutics expire. With the closing of Bioverativ and Juno Therapeutics, I do not have any open arb / special situation plays. The market volatility definitely helped to minimize any potential gains from my growth stocks. This market volatility is a traders dream, but unfortunately for me I am an awful trader. I’m staying committed to my game plan by focusing on long term growth stocks and generating additional returns from special situations plays.

Constellation Brands continues to be my largest position comprising ~ 35% of my portfolio. The company reported a nice earnings report yesterday. I was pleasantly surprised by the 42% hike in dividend to $0.74 per share / quarter ($2.96 per year) with a current yield of ~ 1.3%. I continue to believe there is more room to run with this stock as the company starts returning excess cash (share buybacks and dividend increases) to shareholders after completion of their brewery expansions.

Even with this market volatility, I still cannot find any bargains as valuation is still quite elevated. I continue to maintain a good cash cushion and patiently waiting for opportunities to develop…

2018 Performance = +5.65% with the running monthly returns as follows:

January +2.80%

February +2.82%

March -0.03%