Category Archives: Opportunities

Old Mutual Plc (ISIN GB00B77J0862): Buy one, get four ?

In the blog I looked in the past at a couple of “sum of parts” situations (Alstom, Viel, CIR SpA but I never invested in one. Why ? Because if nothing happens, a perceived discount can remain for a long time. So for a sum-of-part investment, a “catalyst” has to be on the horizon.

Old Mutual

As many other Emerging Market exposed financial companies, Old Mutual did not create a lot of shareholder value over the last couple of years as the chart clearly shows, although they performed better than the overall index:

old.

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Kinder morgan (KMI): Asymmetric upside potential

So let’s move on from focusing on the bad things and look at the the things that I like at Kinder Morgan. While I was writing this post, I found a very good blog post from Glenn Chan from 2 years ago which I can only recommend and includes a lot of interesting points about Kinder Morgan.

The Management:

Rich Kinder, age 71 owns 11% of the company and was famous for paying himself only 1 USD salary during his time as CEO.

620x434

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Special situation quick check: Syngenta & ChemChina

Syngenta ChemChina offer

After the failed attempt of Monsanto to buy Syngenta last year, Chinese conglomerate ChemChina made an offer for Syngenta a couply of weeks ago. Other than with Monsanto, the Syngenta board already approved the take over.

The offer itself is as follows:

ChemChina will pay 465 USD. On top of that, anyone who buys Syngenta shares now, will receive the normal dividende of 11 CHF and a 5 CHF special dividend.

If we expect closing at the end of the year, the potential return would be (in CHF) at a current price of 400 CHF:

-400+(465*0,994)+11+5= +77,75 CHF or a potential 19,4% return for 10 months.

This looks very attractive. However the merger arbitrage/event  market is a very competitive one and those spread usually don’t come “for free”. So why is there such a large spread ?

US regulatory risk

I guess the most obvious reason is that investors fear that US regulators will try to kill the deal. Syngenta has a signifcant US business. There are several rumors around why the US authorities might challenge the deal, most recently some in connection with the Zika Virus.

The Committee on Foreign Investment in the US (CFIUS) will review the deal because Syngenta, through its US research and production facilities, plays a key role in the US food industry.

The Zika virus problem could force CFIUS’s hand, sources said.

“CFIUS focuses solely on whether an acquisition represents a national security risk,” a Beltway CFIUS expert not involved in the merger told The Post. “I certainly think Zika will be a factor.”

From what I found on the net, the problem is that the CFIUS never really explains their actions, so it is very difficult to judge as an “amateur” what the chances will be. A professional hedge fund clearly has the money to pay for advice, most likely from former members of the CFIUS. This is clearly an information disadvantage form me as small investor.

China FX issues

Another problem I could see is the fact that ChemChina needs to come up with around 44 bn USD in USD financing and this could be difficult if there would be really turmoil in China in the meantime.

They haven’t even refinanced their Pirelli bridge loan yet and at least in the Pirelli case they don’t seem to guarantee those loans:

The new refinancing will be non-recourse to ChemChina, but will have elements of support from Pirelli’s Chinese owner, bankers said.

So I guess the ~20% discount is basically a mixture of regulatory risk and financing/China turmoil risk.

On the plus side, even if the ChemChina deals would fall through, there still could be other players interested such as German chemical Giant BASF.

Is Syngenta then an interesting special situation investment ?

What is bothering me is the following: As I said before, this area is very competitive and Syngenta is a liquid stock (50-100 mn CHF a day) and I do not have any special insights into the situation.As discussed before, I guess I have even an information disadvantage.

The potential downside for a failed bid is at least -25% when we look at what happened after the Monsanto bid:

syngenta

So if I assume a simple 50/50 probability, my expected value is negative.

Every “event driven” fund is clearly looking at Syngenta which in turn means that they seem to price the risk at the current price and assume a slightly better chance than 50%.

However I clearly have no basis to assume any higher percentage for a succesful outcome.

All in all, in the past it never had paid out to invest into such a situation with an information disadvantage, so I will stay away from this one.

 

 

 

 

 

 

 

 

 

 

 

 

My 27 investments for 2016

Over the years I found it quite helpful to list my current investments at the end of each year and try to explain (to myself) the investment case in a few sentences.

Former posts can to be found here:
My 28 investments for 2015
My 24 investments for 2014
My 22 investments for 2013

Compared to last year, Sberbank, Gronlandsbanken, Cranswick, Trilogiq, KAS bank and Energiedienst were sold, the Depfa LT2 matured. New positions bought in 2015 are Aggreko, Partners Fund, Lloyds Banking, Gagfah, Pfandbriefbank and Greenlight Re. With 27 stocks, the portfolio is still maybe a little bit too diversified, my preference would be to have not more than 25 positions. Interestingly, only 5 stocks of the 2013 list are still in the portfolio, so there has been some turn around.

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Greenlight Re (GLRE): Poor man’s Berkshire or interesting bet on a David Einhorn Comeback ?

Management Summary:

Greenlight Re is an interesting special situation in my opinion combining 2 bets in one stock:

1. It is a bet that David Einhorn will come back after his worst year ever and 4 years of underperformance
2. Greenlight Re, the Reinsurance company whose investments he manages “mean reverts” at least closer to its historical price book ratio.

This “bet” should be relatively uncorrelated to the overall market and due to the construction of the investment mandate, Einhorn can charge only half of the performance fee for some time.

Disclaimer: This is not investment advise. DO YOUR OWN RESEARCH !!!

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Deutsche Pfandbriefbank AG “forced IPO” – “Superbad” or interesting special situation ?

Management summary:

Oh my god, a bank again…. But Deutsche Pfandbriefbank is actually a pretty simple case: As a “forced IPO” of the good part of Hypo Real Estate, the bank is comparable cheap (P/B ~0,61) against its main peer Aareal bank (P/B 1,0). In my opinion, the risk is limited despite the recent HETA losses as the German Government has absorbed all of the really bad stuff in the bad bank. Similar to cases like Citizen’s, NN Group and Lloyd’s, PBB offers an interesting and mostly uncorrelated risk/return profile for patient investors provided that valuation multiples normalize at some point in time. Positive surprises like M&A are potentially on the table as well.

DISCLOSURE: THIS IS NOT INVESTMENT ADVISE. Do your own research. The author might have bought shares already.

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