Monthly Archives: June 2015

Pharmstandard tender offer completed succesfully

The tender offer for the Pharmstandard GDR’s has been completed successfully today. The deal was completed without a hitch and the cash has already hit my account. Making 3% in two weeks time in – what I perceived to be – a low-risk transaction is pretty sweet.

I’m wondering if Pharmstandard GDR’s are, after the completion of the tender offer, once again an attractive deal. The price has dropped to $4.58 while Augment Investments intends to take the whole company private. If the remainder of the shares is also bought at $5.50 you could make a solid 20% return. Usually in a transaction like this that would be a reasonable assumption, but I’m not so sure if that will be the case here. I believe that the plan is to cancel the listing of GDR’s in London and then make a mandatory tender offer for all ordinary shares under Russian law. At that point of time, they will presumably offer a price in rubles that may or may not be related to the 5.50 dollar bid for the GDR’s. In addition to that I doubt that minority shareholders are well protected in Russia and if Augment Investments can squeeze out the remaining shareholders for less than that they will probably do it. But if I have a reader who knows more about how this transaction will unfold I’m of course all ears!

On a somewhat related note: last week I finished reading Bill Browder’s “Red Notice”[1] about an American fund manager who thought that activist investing in Russia was worth trying. It’s not the kind of book that’s going to make you a better investor, but it is well written, fascinating and reads like a thriller. Highly recommended!

Red Notice book cover[1] I’m probably the only blogger stupid enough to link to without an affiliate link.


No position in PHST.L anymore

Beximco Pharmaceuticals receives US FDA approval

Beximco Pharmaceuticals announced today that they have become the first Bangladeshi company to be approved by the US FDA[1]. The company apparently thinks that this is a pretty big deal, and they have even modified their homepage to display a full-size poster to celebrate this achievement. I can imagine that exporting drugs to the US could be a good business, but I doubt that the financial impact of this approval will be big. They already have approvals from dozens of other countries and so far exports only account for 4.5% of sales. But perhaps the US FDA approval could be a turning point and also make it easier to sell in other countries.

Beximco Pharma US FDA approval poster (cutout)

[1] Not sure what’s exactly the news, in the 2014 AR they already wrote that they successfully completed the US FDA inspection.


Author is long BXP.L

Exited Clarke Inc

I sold my position in Clarke yesterday. I needed to create some room in my portfolio, so I looked at my portfolio and asked myself the question: “If I would start from scratch today, what stock wouldn’t I buy”. AIG was actually the obvious answer, but selling that stock wouldn’t solve my problem because I have a lack of margin room in my portfolio while my net exposure is still comfortably below 100% (my target). The main reason for this is a long/short trade where both legs are non-marginable (like most of the stock I own). In this group Clarke was the obvious sell.

Since I initiated my position in the company the discount between book value (adjusted for the unrecognized pension asset) and the stock price has shrunk from 27.7% to 14.4% thanks to aggressive share repurchases. Because the discount is now a lot smaller future share repurchases will add a lot less value while fixed overhead costs remain. As a result, the stock is in my opinion now trading fairly close to fair value which I estimate at ~CA$13.50/share.

Because of the share repurchases and the shrinking discount I made a 22.5% return in roughly six months while the underlying value of Clarke’s assets remained basically unchanged: Holloway is down a couple percent while Terravest is up a little bit. Not a bad result in my book!

Clarke Inc June 2015 NAV


No position in Clarke anymore

Pharmstandard tender offer arbitrage

Pharmstandard is a Russian pharmaceutical company that is controlled by Victor Kharitonin. He is trying to take the company private (after IPO’ing it in 2007), and to make this happen Augment Investments has launched a tender offer for the GDRs that trade in London. The company is offering US$5.50/GDR while these last traded at US$5.31 for a spread of 3.6%. That doesn’t sound like a whole lot, but with the tender offer expiring at the end of next week the potential IRR is pretty high. If we assume that it takes another week before payment is made the IRR is would be ~150%. With Augment Investments waiving the 50% minimum acceptance condition this appears to be a low-risk transaction, although there is some amount of unquantifiable random Russian risk: you never know if all parties continue to play by the rules.

In addition to this the full tender offer memorandum is nowhere to be found online, and the company has so far not responded to my request to provide it. So perhaps I’m missing something that everybody else knowns… Despite that, I think buying a couple of shares and tendering them is a decent bet. Otherwise, I’m hoping I have a smart reader that knows more!

Pharmstandard shareholder structure


Author is long Pharmstandard

Retail Holdings sells Singer Thailand stake

Retail Holdings is one of my biggest positions, and as usual the thesis is pretty simple: the company is trading at a large discount to the public market value of its various holdings while there is a catalyst on the horizon since the company is trying to liquidate. The company is taking its time to do that, but today they finally announced that one of its biggest positions has been sold. The stake was sold on the public market, an exit route that the company doesn’t envision as possible for their other stakes since they own large majority positions in the other subsidiaries. What the company will do with the cash is undecided at the moment. I would expect a big dividend since that is what they have done historically, but there are other options:

“No decision has yet been made as to the use of proceeds, which may include a distribution to shareholders (in addition to the $1.00 per Share previously suggested), share repurchases, and/or purchases of portions or all of some of the minority stakes in the Company’s continuing subsidiaries.”

The market reacted positive on the news, but despite that fact the discount to NAV is still slightly bigger than when I first initiated my position almost a year ago:RHDGF NAV June 2015


Author is long Retail Holdings