Bought Rite-Aid

I took off my positions in Actelion (Ticker: ALIOY) (-7.18%) and Valspar (Ticker: VAL) (-0.74%) generating some small losses. These were not large positions (~4% in each), but Actelion essentially hit my loss limit and Valspar looks like it will take a bit longer to close (end of Q1). I did not like the risk profile when compared to Rite-Aid (Ticker: RAD), which just  announced the store divestiture to soothe the FTC’s concerns. I initiated a position in Rite-Aid (yes, once again!) at an average price of $8.60. This looks like it has a very good chance of closing by the extended merger end date of 1/27/17. The divestiture of the stores to Fred’s (Ticker: FRED) really de-risked this merger arb play in a big way. I am looking at a potential net gain of ~4.5% (~41% annualized assuming a close by 1/27). Yes, this is a large position…

I’ve learned that position sizing in relation to the potential risk is very important. Even though I took losses in Actelion and Valspar, they were relatively small... The Rite-Aid risk reward is just too good to pass up.

Bought: Actelion and Valspar

I entered two new special  situations / merger arb positions today: Actelion (Ticker: ALIOY) and Valspar Corp (Ticker: VAL). I went in relatively small as both are ~ 4% positions. I believe Sanofi (Ticker: SNY) is motivated to get the deal done with Actelion and it looks like an agreement with the Fed is close regarding Sherwin Williams (Ticker: SHW) proposed acquisition of Valspar. In addition to these two new arb plays, I have Wafergen (~9% position), which I hope to hear some preliminary Q4 numbers in ~ 3-4 weeks or so. Wafergen’s (Ticker: WGBS) buyout price will be based on its 2016 revenues. I’m also looking to get back into Rite-Aid (Ticker: RAD) once again… Getting more busy on the merger arb front as the year comes to an end.

Sold Virgin America

I closed out my position in Virgin America (Ticker: VA) today at $55.75 after the wires reported that an agreement was imminent with Alaska Air (Ticker: ALK) and the DOJ. I was able to generate a net gain of 1.54% (~19.23% annualized return) with the position that was initiated on 11/08/16. This position was no longer attractive assuming a year end close. Now looking into other hairy arb plays…

November 2016 Performance

November was another difficult month for my portfolio as the Presidential election negatively affected several of my large holdings such as Constellation Brands and Visa resulting in a loss of 1.59% for November. Constellation Brands (Ticker: STZ) sold off because all of a sudden there will be less people drinking their Mexican beer and a tariff will be implemented for their imports. Umm… I think not, Constellation Brands will do just fine as their products are gaining market share everywhere in the US. I doubt any tariff will be implemented for beer manufactured in foreign countries. If this was the case, all of the major beer producers will be impacted and will lobby hard to ensure this does not happen. Just doesn’t make sense for the beer biz… it’s like forcing Anheuser Busch to manufacture Bud in Mexico and calling it an American beer.

It’s hard to give a rational explanation as to why Visa (Ticker: V) sold off, but it’s probably a risk on trade for the financials. Financials that take on the risk of lending will do well under this administration. I would say that Visa was a safe haven and investors sold to redeploy into more risky financial assets.

Both Constellation Brands and Visa are long term holds for me. I have no intention of selling any of these two for a long long time…

Now some merger arb plays, I’m still very heavy in Virgin America (Ticker: VA) and really hope this one gets wrapped up by year end. I initiated a position in Wafergen (Ticker: WGBS) (~ 9% position) after the shareholders approved the buyout from Takara Bio. The final buyout price of Wafergen will be determined once the annual revenues for 2016 have been finalized. The company should be able to easily do $9 million in revenues, which would equate to ~ $5.00 payout. Any additional revenues will equate to a higher payout to shareholders. The company is guiding $10 to $12 million for the year. I believe $10 million is very doable for this company.

Finally if anyone wants some lunch money, check out the WebMD Health (Ticker: WBMD). There is a tender offer for $55 with an odd lot priority (less than 100 shares). The tender expires on 12/15/16.

Performance Year to Date = +16.12% with the running monthly returns as follows:

January -5.47%
February -3.50%
March +7.51%
April +0.84%
May +6.34%
June -2.6%
July +12.2%
August +6.57%
September +1.94%
October -5.49%
November -1.59%