I exited my position in Conrad a week ago and I sold my position in AIG today. I bought both stocks in 2012, and they were both big winners (although I could have done a lot better if I sold Conrad earlier). Including dividends Conrad returned 114.7% while I made 92.6% on AIG. At this point in time, they were both low conviction ideas, and I needed to make some room. My portfolio is currently 102.7% long and 5.0% short for a net long exposure of 97.8%, so I’m still almost fully invested. Luckily a couple special situations will also be concluded this month.
Northern Offshore reported that the merger with Shandong Offshore was completed earlier this week and that the cash payment will be made on August 12. MCGC has scheduled their shareholder meeting for August 14, and if enough shareholders vote in favor for the merger it should and could be completed shortly thereafter. There is a risk that the company will not be able to gather enough votes because a lot of shareholders are retail investors who might not take the trouble to cast a vote. I don’t think people will vote against the merger because they are unhappy that the deal with HC2 didn’t go through since that deal is now totally dead after HC2’s stock price dropped ~40%.
Author is long NOF.OL, MCGC, no position in AIG and CNRD anymore
Northern Offshore (NOF, NFSHF) is a marine drilling company that managed to attract the attention of several value investors in 2014 (a good write-up can be found here). Even when oil prices were high it was a somewhat speculative investment, and when oil prices crashed at the end of 2014 the stock followed. In the past year, the stock moved from a high of NOK12.55/share to a low of NOK1.75/share. In hindsight, the selling panic in the stock proved to be an excellent buying point since Shandong Offshore International announced that they reached a deal to acquire the company at NOK7.59/share two weeks ago. While the big money has now been made I think that playing the merger arbitrage is also attractive. The stock is currently trading at NOK7.20/share which implies a possible 5.4% absolute return.
I think that is a big spread for a deal that should be pretty low risk. There is no regulatory risk, the deal will be financed from the purchaser’s existing cash resources and 65% of NOF shareholders have already indicated that they will vote in favor for the acquisition. In addition to this there is a US$12.5 million break-up fee payable by the purchaser if they fail to complete the acquisition. That’s a large fee since the total deal value is just US$160 million. I’m guessing that the spread is relatively large because it’s a transaction in a small cap stock on a foreign exchange (for most investors), and the fact that the acquirer is a Chinese company is probably also not helping. If this is indeed a real risk I think you are getting paid enough to take it.
Long Northern Offshore