Monthly Archives: May 2016

Elliott Associates launches bid for four Italian REIFs

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Elliott Associates, one of the worlds most successful hedge funds, has launched a bid to acquire the share capital of four Italian REIFs. Last year I spend some time analyzing this sector, and decided to buy a basket of seven different funds. I found these attractive because the funds all trade at large discounts to NAV (often >50%) while they are all liquidating and returning capital to shareholders to coming years. It’s good to see that a big and successful hedge fund is apparently seeing the same value, and has launched a bid for four funds.

Elliott Associates is offering roughly a 25% premium compared to the undisturbed market price, and the big question is of course should I be happy with this and tender my shares or should I keep my position? Elliott Associates is obviously expecting to generate “adequate” returns even at a 25% premium, and I’m pretty sure that what they consider adequate is also good enough for me. On the other hand I also could just take the money now, and try to reinvest it in one of the many other attractive looking Italian REIFs.

A third angle to consider is whether or not a position is warranted just to play the merger arbitrage game. The current spread between the market price and the offer is roughly 6% which is pretty nice. The biggest issue is that Elliott Associates will only accepted tendered shares if they are able to acquire more than 50% of the outstanding share capital, and I have no idea how to handicap the odds of that happening. I can imagine that many shareholders, like myself, aren’t exactly jumping at the opportunity to sell those funds at a 40 or 50% discount to NAV.
Overview Elliott offer Italian REIFs

What do you think the wisest course of action is here? I think I’m currently leaning towards keeping my positions, and just letting things play out till the funds liquidate.

Disclosure

Author is long QFAL.MI, QFID.MI and various other iREIFs.

Nano cap merger arbitrage in Nanosphere

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Last Sunday Nanosphere announced that it will be acquired by Luminex for $1.35/share. Luminex is a $837 million market cap company while Nanosphere is being acquired for $58 million. Just $16.5 million is payment for the outstanding ordinary shares, the remainder is for the outstanding debt and the convertible preferred stock. Luminex is planning to acquire Nanosphere through a tender offer that will be launched within 15 business days after the merger agreement was signed. Since most tender offers remain open for ~20 business days the merger should be completed before the end of June. This is confirmed in the press release that guides to an expected close in the second quarter of Luminex FY2016 (that ends December 31).

So the deal should close quickly, and there are really no big risks that can stand in the way. Regulatory approval isn’t an issue for such a small deal, Luminex can finance the deal with cash on hand and Nanosphere is a great strategic fit for Luminex. One condition of the tender offer is that at least a majority of the stock is tendered, but that shouldn’t be a problem since Luminex is offering a 73% premium. So I think this is a super low-risk deal, but presumable because of the small size of Nanosphere the spread is relatively wide and it’s possible to buy the stock at $1.31. This means an upside of 3.1% which I think is great for a deal like this.
Nanosphere logo

Disclosure

Author is long NSPH

Philips Lighting IPO: a small idea for my Dutch readers

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Philips, a well-known Dutch company, is going to separate itself in two companies later this month through an IPO. Usually participating in IPOs is a losers game for retail investors because the shares of the most attractive companies are often allocated to the most important clients of the big banks. Here in the Netherlands the situation is a bit different though, because retail investors often get preferential treatment and the case of Philips Lighting is not different.

Royal Philips is offering 37.5 million shares of Philips Lighting, and up to 10% of the offering is reserved for retail investors who will be allocated the first 250 shares without being prorated. This means that a maximum of 15,000 retail investors can subscribe to the offer without fear of being prorated. The shares have an indicative price range of €18.50 – €22.50. Since most IPOs are priced at a point where you are expected to make a profit on the first day of trading I have subscribed to a couple of shares. I don’t expect a big upwards move on the first day, Philips Lighting is not World Online, but just like ABN Amro last year I expect to make a few percent.

Philips Lighting IPO illustration

Disclosure

No position (yet)

PNE Industries reports results for H1 FY2016

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Last week PNE Industries reported its results for the first half of fiscal year 2016 (that ends 31 March). The half-year report is not a whole lot more than simply the income statement, balance sheet and the cash flow statement for that period, so it’s not the most informative. But the numbers are the most important anyway, and they look good. Revenue is up 1.5% while the cost of sales dropped 6.1%, making gross profit jump with 21.9%. Because the sale of the PNE Print subsidiary was completed in April, after the end of the reporting period, the S$10.26 consideration is not yet reflected in the financials. I have revised my valuation of the company upwards with a bit more than 10% to account for the solid profitability of the past six months. In the meantime the share price has risen with almost 25% which obviously reduces my perceived upside of the stock, but I think there is plenty of upside remaining.Valuation PNE Industries updated for H1 FY2016

Disclosure

Author is long PNE Industries

Beximco Pharma announces 2015 results

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Beximco Pharma announced their results for 2015 today. The company had a solid year and managed to grow revenues with 15.7% while export sales grew a whopping 68.3% (starting from a very small base though). Thanks to the solid performance of Beximco since I bought it I have made a nice profit on paper, but the discount between the shares that trade in Bangladesh and the London GDRs has barely budged in the meantime and is at the moment of writing 62%. Because of this huge gap Beximco is currently my highest conviction idea, and also one of my biggest positions. By buying the stock in London you buy the company at a 6.4x P/E ratio while investors in Bangladesh are willing to pay 21.2x.

It’s obvious that we don’t have to expect that this gap will close anytime soon, but meanwhile we get paid a nice dividend that has been growing the past years. I think it’s a deal that is too good to pass up on. The graph below shows the historical growth in earnings/share and equity/share (in Bangladeshi Taka). That looks pretty sweet to me for a 6.4x P/E company!

Historical earnings/equity graph Beximco

Disclosure

Author is long BXP.L