Back in Nexen, Inc.

I nibbled back into Nexen, Inc. (Ticker: NXY) today at $25.15. This position currently makes up ~ 6% of my portfolio. The risk reward appears favorable as I see the likelihood of this deal closing very high, but again the question is when will it close? A Q4 close would generate an annualized return of ~ 34% whereas a Q1, 2013 close would generate an annualized return of ~ 18%. Of course, I would prefer the Q4 close… Cnooc Ltd. (Ticker: CEO) is currently in the market for a $6 billion loan and they are anticipating a Q4 close. At the end of the day, both sides will benefit from this deal as Canada needs investment to develop their natural resources and Cnooc is looking for more oil.

Edit: I sold out of my Nexen position at $25.19. I'll continue to scalp this one in this market environment.

Venoco Another Extension

Venoco, Inc. (Ticker: VQ) announced another extension to obtain financing by October 5th. From the latest updated slide, it looks like they got rid of the VPP sale and increased the 2nd lien loan from $225 to $315 million. So the extension will give more time for Timothy Marque to raise more cash and to appease the bond holders. There has been strong demand for the 2nd lien loan so I don’t see a problem. It’s just going to take some additional time to raise the cash. In any case, I did reduce my position by ~ 60% yesterday by selling shares from $11.75 to $11.85 generating a net gain of 2.13% (~ 54% annualized). This has been one strange merger arb play…

Edit: I sold out of my remaining position in Venoco this morning at $11.69 (cost basis of those shares were ~ $11.94). Risks was just not worth it... My total gain from this trade was 0.43% over a 15 day period (10.32% annualized). Not good, but I still made some $...

Surmodics Dutch Tender Results

Surmodics, Inc. (Ticker: SRDX) announced the preliminary results of the Dutch tender offer. The final tender price will be $19.00, which is the top end of the price range. This was more of an experiment to see how the Dutch tender offer works. I’ll end up making a net gain of 8% over a 31 day period (assuming a payout a week from today). I only purchased 99 shares so I’ll be just lunch money, but it was a good learning experience. The proration factor was 97.8% so I could have loaded up on Surmodics and generated a nice annualized return of ~ 92%, but it’s difficult to predict what the proration factor will be.

Out of Nexen Again

I sold out of Nexen, Inc. (Ticker: NXY) today at prices ranging from $25.25 to $25.29. I’m reducing my leverage once again as we head into the not so friendly months of September and October. I’ll probably get back into Nexen at some point. This deal will eventually close, but when is the big question…

Venoco Update

We did receive an update from Venoco (Ticker: VQ) today regarding the status of the financing for the management buyout. The press release stated the following: “…Rick Walker, chairman of the special committee of the board of directors, stated, "Mr. Marquez has delivered evidence of commitments covering all of the required financing for the merger. Drafting of definitive documentation is in progress and the special committee and its advisors will be reviewing that documentation as it becomes available…” I do believe we are close to the finish line. The extension to wrap up the financing has been extended to September 13th. The risk reward is becoming much more favorable as we receive additional information on the financing. I added more Venoco today at $11.43.

GCVRZ Dutch Tender Offer by Sanofi

Sanofi (Ticker: SNY) just announced a modified Dutch tender offer for 30% of the CVRs (Ticker: GCVRZ) with a price range of $1.50 to $1.75 expiring on October 5th. The CVR was created as part of the Genzyme acquisition. The CVRs have not made any milestone payments to date, but the payments may be coming soon with the possibility of FDA approval early next year. The potential payouts are as follows:

$1 for FDA approval of Lemtrada
$2 for $400 million in sales of Lemtrada
$3 for $1.8 billion in sales of Lemtrada
$4 for $2.3 billion in sales of Lemtrada
$3 for $3 billion in sales of Lemtrada

I still own the CVRs from the Genzyme acquisition and will not be tendering any of my CVRs. I believe the first two milestones can be achieved. The only reason Sanofi is buying back the CVRs is that they believe certain milestones will likely be achieved. If the first milestone (FDA approval) is not achieved, then the CVRs are essentially worthless.