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).

2014 Year Results

2014 came and went… I generated a net gain of 29.47% for the year. This was another satisfactory year in which I was able to beat the averages. I continued to employ a strategy by selecting growth companies and special situations / merger arbitrage plays. The growth companies that performed well were Apple (Ticker: AAPL), Constellation Brands (Ticker: STZ), MasterCard (Ticker: MA), Visa (Ticker: V) and Vertex Pharmaceuticals (Ticker: VRTX). These companies contributed significantly to the performance.

The special situations / merger arbitrage were a bit challenging this past year as some of the selections did not work out such as Shutterfly (Ticker: SFLY), B/E Aerospace (Ticker: BEAV), Smith & Nephew (Ticker: SNN), Loral Space and Communication (Ticker: LORL), etc… You get the point! Fortunately, the ones that did work more than covered those losses.

I’ll continue with this strategy in 2015 and hopefully it will produce similar if not better results. As they say: “Past performance does not guarantee future performance.” I truly believe that individual investors can outperform the averages with a little homework.

2014 Performance Year to Date = +29.47% with the running monthly returns as follows:

January -0.67%
February +6.50%
March -2.69%
April -1.51%
May +7.30%
June +2.59%
July -1.46%
August +4.57%
September +2.02%
October +5.12%
November +7.73%
December -0.034%

Annual performance for the past three years is as follows:

2012 = 61%
2013 = 44.61%
2014 = 29.47%