More Medivation

I’ve been loading up on Medivation (Ticker: MDVN) as this represents a very nice risk reward merger arbitrage play. I have increased my position in Medivation to ~ 50% of my portfolio (I had a ~ 15% position prior to the Pfizer (Ticker: PFE) acquisition announcement). The current price of ~ $80.25 represents a net gain of ~1.5% (~15% annualized return assuming a close by September 30th). The tender offer will commence next week with a potential closing at the end of September. I see minimal regulatory risk and Pfizer is good with the cash. I really like these type of relatively low risk merger arb plays…

Sequenom, Linkedin and Diamond Resorts

I initiated a ~10% position in Sequenom, Inc. (Ticker: SQNM) at $2.37. This company is being acquired by Lab Corp. (Ticker: LH) for $2.40 in cash via a tender offer, which expires on September 7^th. I expect this deal to close on September 7^th, which would equate to a net gain of ~ 1.26% (~15% annualized return). I see this as a rather straight forward deal with minimum risk. It was rather easy to build a position at the bid price of $1.37.

I also picked up some Linkedin (Ticker: LNKD) (long stock and short Puts). Everyone knows this story and is probably a core holding for many large merger arb funds. I see this as a very safe arb play and an area to park some extra cash. I anticipate a closing by the end of November, which would equate to a net gain of ~ 2% (~6% annualized return). A rather boring merger arb play, but sometimes you need to be a bit conservative.

Finally, I initiated a position (~ 8% position) in Diamond Resorts (Ticker: DRII) at $29.50. This time share company is being acquired by Apollo for $30.25 in cash via a tender offer. The first tender expired and has been extended to August 24^th. I see a good chance that this deal will close on August 24^th if they’re able to quickly complete the debt offering.

Sold Wafergen

I had the unpleasant opportunity to experience the ups and downs in Wafergen (Ticker: WGBS). I initiated the position in May and recently experienced a nice run up into Q2 earnings. I sold ~ 20% of my position early in the week locking in some nice gains. In hind sight I should have sold more as the stock was pricing in strong Q2 revenue numbers. The stock fell sharply after the Q2 earnings report. The revenues came in a little light, but it was the revenue guidance that tanked the stock. The annual revenue guidance went from $12 - $13 million to $10 - $12 million. The short fall can be attributed to the placement of the icell8 instrument. These machines cost $250,000 a piece and purchasers are not closing in on the deals fast enough. It looks like some of the sales will be pushed into the next year. The revenue guidance reduction directly impacts the merger price as the final takeout price will be based on a multiple of revenues. I exited my position today as I have no confidence in their guidance. I still managed to generate a net gain of ~ 17% so I really can’t complain. I just got a bit overconfident and greedy. The market definitely puts you back in place…

July 2016 Performance

I’m kind of back from a little hiatus and just starting to catch up on things… I’ll start off with a review of the July performance. July was a nice break out month as several merger arb positions successfully closed. The first was Qihoo 360, which closed on July 15^th. I built up ~ 40% position in Qihoo 360 and the closing of this merger contributed nicely to the July performance. I initially lost money in Qihoo 360 early on with the short Put positions during the panic selling of the China plays. I re-evaluated the situation when things settled down a bit and regained my conviction to go in big. The second significant merger arb play that closed was Multi-Fineline Electronix, which closed on July 27^th. I basically rolled over the proceeds from Qihoo 360 into Multi-Fineline Electronix. I went in big again with Multi-Fineline Electronix as it made up ~ 60% of my portfolio. These positions were the primary contributors to the July performance. I never thought I would go in this big with the China plays, but I could not resist based on the probability of these mergers closing.

August will be a busy month for my other special situation / merger arb plays. First, Wafergen (Ticker: WGBS) (~10% position) is scheduled to release earnings after the bell next Tuesday. All eyes will be on the revenue numbers as this is the key in determining the take out price. Second, I recently initiated a position in Everbank (Ticker: EVER) (~20% position), which is currently in talks with TIAA. I’m expecting an announcement of the deal next week. Finally, indication of interest for Medivation (Ticker: MDVN) (~15% position) is due mid-month so news should be leaking out shortly.

So far August is off to a good start, but we’ll see how things unfold as the month progresses…

2016 Performance Year to Date = +14.93% 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%