Monthly Archives: July 2016

MTY Food Group closes acquisition of Kahala Brands

Kahala Brands logoMTY Food Group announced yesterday that it had successfully closed the acquisition of Kahala Brands. The deal closed without any delays after Kahala Brands shareholders approved the merger last week. It’s still a bit too early to tell if this merger was indeed the merger arbitrage idea of the year as I called it in an earlier blog post. The final payout price is still unknown since it remains subject to post-closing working capital adjustments. I don’t expect a negative surprise here, but we’ll see. Since I bought the stock at $139 and the expected value of the merger consideration is roughly $155 I think it will work out very fine. Hopefully the cash will hit my account soon.


Author is long Kahala Brands

Elliott Associates increases bids for QFAL and QFID

Elliott Associates launched bids for four different Italian REIFs two months ago, and so far they haven’t been very successful in acquiring shares. They managed to acquire 16% of the shares of the Polis fund, but another hedge fund overbid them on the Mediolanum Real Estate Fund and apparently there was little interest from Fondo Alpha and Immobiliare Dinamico shareholders to tender their shares. As a result Elliott Associates decided to increase their bid for those two funds. They raised the offer for Fondo Alpha by 12.4% from €1156.25 to €1300.00 and the offer for Immobiliare Dinamico was increased by 12.5% from €69.31 to €78.00. I didn’t tender my shares in the previous offers, and I don’t intent to tender them in the new offers, but I do find it very encouraging to see the large interest from hedge funds in Italian REIFs. I bought them last year and no-one was interested, and now everybody tries to get a piece of the action:

Overview tender offers for iREIFs


Author is long Fondo Alpha and Immobiliare Dinamico

Bidding war for QFDI heats up, QFVIG sells Milan property

This year a lot seems to be happening in the Italian REIF sector. First we had Elliott Associates launching tender offers for four different funds, and then York Capital Management joined the party by offering €54/share (plus CVR) for Fondo Delta. It didn’t take long before a second interested bidder emerged who was willing to offer €56.70/share and on Monday the bidding war intensified with a third fund launching a tender offer at €65/share. I’m not exactly sure why there is so much interest in this specific fund, but I can’t complain. This offer is still at a 30% discount to the €92/share NAV, but it’s a huge improvement to the 50% discount Fondo Delta was trading at earlier this year. Despite that I don’t think I’ll tender my shares since I expect that simply waiting for the fund to liquidate will be better.

One fund that is making excellent progress in this regard is Valore Immobiliare Globale. The fund announced last Friday that it sold its Milan property for €26.8 million (equal to its appraised value as of 31 December 2015). This is a pretty big deal since the fund now only has two properties remaining with a combined value of €28.3 million. The announcement caused the stock the jump by 20%, but also in this case the discount to NAV remains big at 30%.

Milano - Via Messina 38 - Tower A / C


Author is long QFDI.MI and QFVIG.ME

Argo Group completes share buyback programme

Last Friday Argo Group announced that is successfully completed the share repurchase program that was started on the 30th of March. In just three months time the company spend £1.96 million repurchasing 19.0 million shares (28.1% of the outstanding shares) which is pretty impressive considering that insiders owned 33.2% of the share capital and on the AIM market average daily volume is around 60 thousand shares a day. Apparently there was plenty of liquidity off-exchange using block trades.

I have mixed feelings about the successful share repurchase program. It’s good that they managed to buy a large amount of shares at a nice discount to NCAV which is nicely accretive to intrinsic value. At the same time I’m worried that the management team didn’t do this share repurchase program to create value, but to solidify their control of the company. Thanks to the repurchase program their ownership went from 33.2% to 51.2% without paying any control premium to minority shareholders. I don’t really like this, and that is why urged people earlier this year to vote against the share buyback proposal. Unfortunately the vote passed, and I now have to accept that I’m even more at the mercy of the whims of the Rialas brothers than before.

Agro Group repurchase history


Author is long Argo Group

Half-year portfolio review, 2016 edition

It’s the first of July and that can only mean one thing: it’s time to look at the performance of my portfolio so far. I think 2016 has offered the most challenging environment for investors since I started this blog, although that is more indicative of the lack of market turbulence in the previous years than the seriousness of the crises this year. In the middle of February things were not looking very good with global stock markets and my portfolio down roughly 10%, but both managed to recover. Last week was interesting as well with the unexpected negative result of the brexit vote, but fortunately(?) the market impact (so far) is smaller than I expected.

Year Return* Benchmark** Difference
2012 18.53% 14.34% 4.19%
2013 53.04% 17.49% 35.55%
2014 27.72% 18.61% 9.11%
2015 20.23% 8.76% 11.47%
2016-H1 8.52% -1.02% 9.54%
Cumulative 202.28% 71.53% 130.75%
CAGR 27.87% 12.74% 15.13%

* Return in euro’s after transaction costs, dividend withholding taxes and other expenses
** Benchmark is the MSCI ACWI (All Country World Index) net total return index in euro’s

As you can see the MSCI All Country World Index (measured in euro’s) is down a tiny amount while my portfolio is up in the high single digits. I think this is a fantastic result. In absolute numbers it’s already more than satisfactory and compared to the benchmark it’s really great. I always wrote that I expect that my portfolio would do relatively well in a bear market, and it’s good to see some confirmation of this. I should add that I’m actually under-reporting my performance somewhat since my brokers values CVRs at zero even though I spend money acquiring them (e.g. ALXA). This subtracted approximately 64bps from the results.

Performance attribution H1 2016

I’m pretty happy with the performance of the majority of my positions this year with Conduril being the obvious exception. The stock dropped 45% from a price of €56/share at the start of the year to €31/share now. There are some good fundamental reason why the stock has been getting cheaper, the main reason being the big exposure to Angola that isn’t doing too well since oil prices dropped. At the same time the stock is now trading at just 37% of NCAV (if we include some loans to Portugese companies that are classified as non-current assets). Because of that I decided to increase my position in the stock recently, although I’m at the moment not as willing to bet big on it as a few years ago.  At that time it was also very cheap, but with less assets and (way) more earnings power. Now the distribution of possible future outcomes is more binary which makes it sensible to allocate not too much capital. Also nice to see is that Retail Holdings is at the top of the list with regards to performance since I called it my best idea for 2016 on Seeking Alpha.

Portfolio overview H1 2016

As you can see my portfolio is currently positioned conservatively with a big allocation to special situations (that usually are less correlated with the overall market) and cash. While my allocation to special situations varies throughout the year I think this is reasonable representative for the first six months of 2016. I think I can be pleased that assets that made up just 25% of my portfolio generated the majority of my overall performance. Unfortunately I cannot simply allocate more capital to this category because there are usually a limited number of attractive deals in a given time period that I can find. Kahala Brands is for example accounting for roughly a third of the special situations portfolio right now which is certainly as big as I want to go. If anything that might be a bit on the too big side already since the spread has already narrowed significantly since I first posted about the idea. But with an expected close in roughly one month time while the spread is still 6% selling just feels wrong.


Long everything in the portfolio overview