August 2018 Performance

August turned out be a wild ride. I was quite surprised that my portfolio was still able to generate a healthy return with Constellation Brands (Ticker: STZ) taking a hit with their investment in Canopy Growth (Ticker: CGC) and my failed arb play with iKang Healthcare Group (Ticker: KANG). I guess a little diversification does help as Apple (Ticker: AAPL), MasterCard (Ticker: MA) and VISA (Ticker: V) delivered strong returns during the month.

So obviously the big news is the $4 billion equity investment in Canopy Growth by Constellation Brands. They are certainly going all in with weed and they definitely paid a high high price. The market didn’t like the news and the shares promptly declined to ~ $200. Constellation Brands will be taking on significant debt to finance this investment and there will be execution risk as the market is not well defined. I take a long term view in Constellation Brands and do believe this investment will pay off. They will be essentially creating new markets from beverages to consumables. We’ll get a glimpse of this market as Canada legalizes recreational weed use in October. I’ve been waiting patiently to add to Constellation Brands and this was the opportunity I was waiting for.

I did try to get cute with playing iKang Healthcare as a merger arb play and promptly blew up on me as a large percentage of investors are seeking appraisal rights. Now it’s up to the courts to determine a fair price for these particular investors. The parent can now call off the deal if they determine that the price they have to pay is too high. This will likely close, but I’m not comfortable with the risk. Regarding other merger arb plays, I’m currently involved in Rent A Center (Ticker: RCII), CA Technologies (Ticker: CA) and SodaStream (Ticker: SODA) via options.

That’s a wrap for August…

2018 Performance = +20.47% 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%

August +5.1%

Edit: Updated August numbers after reviewing brokerage statement (calculating value of outstanding options can be tricky sometimes).

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%