Sh-tdown To End

2018 is shaping up to become another year during which our selected small caps get cashed out by takeover bids. We had only one such takeover in 2017, of Stada Artzneimittel, a German generic drug producer, by a hedge fund pair which still owe us money because the final price paid to German shareholders significantly topped what was paid to owners of its American Depositary Receipts. We also gained from two mergers, which revalued our holdings in two stocks.

Back before the Global Financial Crisis (2007-9), we got bought out of holdings regularly at huge premiums.

As of today there have been two buyouts in our portfolio.

*Amazon (AMZN) cancelled its collection of “Prime” membership after I sent the firm a copy of Friday's blog. It shouldn't be necessary to go public with disputes in order to settle automatic sign-ups to a sneaky system of collecting payments headlined as a “free trial.” The message about the “non-renewal” was headed “Don't forget to smile!”

News today from Bermuda, Brazil, Britain, Canada, Chile, China, Colombia, Denmark, Dutch Antilles, France, Finland, Germany, India, Ireland, Israel, Italy, Japan, Mexico, Panama, Sweden, Switzerland, and the USA where the sh-tdown is being ended.


*American International Group and Validus Holdings (VR) of Bermuda today announced that AIG will pay $5.56 bn to buy the Bermuda-based reinsurance firm and also re-enter the Lloyd's of London market. Commented Harry Geisel, a bit of an insurance maven who first tipped VR, CEO “Ed Noonan always said he would sell if the price was right.” Now a recovering AIG is using its excess capital to make the play. The deal is expected to close by the summer but already VR has gained 44.46% today and is 57.4% over what we paid for it. It booked the highest gain on the NYSE. The deal will be at $68/sh plus 0.38 per share in quarterly dividends at least twice. .

Given that newbie AIG CEO Brian Duperreault says he can cover the costs of the deal, which also gets AIG into crop insurance, we think it is unlikely to be derailed. After the spate of hurricanes and earthquakes last year, VR lost about 15% but Harry insisted that the company would be able to recoup P&C payouts this year with higher premiums. At this stage, unless regulatory risks appear, we will hang in until the formal tender. AIG is a US stock and it fell today on the news and its down-rating by S&P over what it will cost.

*The first big bid was for water and sewage pipeline integrity company, Pure Technologies, of Canada, PPEHF, by acquisitive US newbie Xylem, a generalized water infrastructure firm. PPEHF shareholders get to vote on the deal Jan. 24, Weds. We will tender and drop coverage because XYL is a US firm.

*Last year's mergers included that of Aberdeen Asset Mgm with Standard Life Insurance in Britain, and of Potash of Saskatchewan and Agrium (AGU) in Canada. We continue to own the successor companies, Standard Life Aberdeen, SLFPY, and Nutrien, NTR. Scotiabank's Ben Isaacson has raised his target price for NTR to $60 mainly because he expects NTR to get a good price for its take in Chilean Soquimich, which it has to divest. Deutsche Bank upgraded SQM to buy today.

*Ford Equity downrated Banco Latinoamericano de Comercio of Panama to hold from buy. BLX.


*Bloomberg reports today that our E.On, ute EONGY of Germany, is among the potential bidders for solar assets in Italy owned by Terra Firma Capital, a UK hedge fund. The other bidders for Rete Rennovabile include BP plc. UBS argues that higher interest rates are not bad news for utes.

*Cosan of Brazil made a new 52-wk high today at $10.72. While mainly a cane sugar refiner, it also operates gas stations and logistics facilities, and makes ethanol from cane bagasse (waste). It announced an Investor Day in NYC Mar. 16, but the main reason for the jump is that Brazilian inflation fell to 2.9% in Dec., its first drop below 3% since 1999 when inflation targeting was adopted by the CB. Interestingly, regulated prices which affect CZZ in gasoline, cooking gas, and power, showed lower inflation than the country overall in 2017 according to BofA-Merrill Lynch. Food prices last year actually fell 0.8% which includes sugar of course,.

*While fear of higher priced aviation fuel has cut the stocks of many western airlines, China Eastern Airlines shares are up 3.64%, because CEA is about to get a huge inflow of passengers for the Chinese New Year and because it apparently hedged its forward fuel buys.

*Schlumberger Ltd is up on Jefferies and Atlantic Equities raising their target price for SLB after Halliburton reported good results today. SLB, an energy exploration and operations tech firm which reported last week, is also rated outperform by Crédit Suisse with a new target price of $86 vs $71. SLB also reported in its conference call that it will exit seismic and its WesternGeco will stop bidding on contracts and might be divested at less than what it cost.

*Colombian Ecopetrol is up 5% today hitting $18.2 a new 12-mo high for EC.

*Israel offshore oil developer Delek Group is up 5.4% today in part because Negev residents are objecting to windmills to generate electricity cheaply in the region. DGRLY offers classic oil and gas. It also will gain from the sale of the Tel Aviv Stock Exchange.

Drugs and Health

*Teva allegedly is worth $30/sh according to Jana Partners which has taken a large but unknown stake in the Israel generic drug firm. This has boosted TEVA stock which earlier fell 3% over its annoulcement that its asthma injection drug reslizsumab (Cinqair) failed phase 3 trials preventing attacks in people with high blood eosinophils. However the intravenous formulation works. This is good news for GlaxoSmithKline of the UK.

*For GSK, its supplemental new drug application for Trelegy Ellipta is under FDA review, now that the US gummint is back in business. GSK reports Feb. 7 at 9 am EST.

*Sanofi's (SNY) purchase of US hemophilia specialist Bioverativ which was spun out by Biogen for $11.6 bn is a shot across the bow for Danish Novo Nordisk which developed its own hemophilia drug. SNY already produces a RNA interference leukemia drug called fitusiran. This boosted the price of Biotest, a German firm which has to sell its Swedish Biovitrum leukemia arm to be taken over by a Chinese firm. NVO is in an M&A tangle already to buy Dutch Ablynx which also does blood disease drugs but it could move on nearby Sweden.Bioverativ is working in RNA interference to treat leukemia, which is a genetic disease.

*Also affected is Swiss Roche's hemophilia drug Hemlibra which uses weekly injections of antibodies to block bleeding episodes in patients whose disease developed resistance to other treatments like transfusions. Its Tecentriq treatment for lung cancer won Japanese approval.

*Worst hit by the SNY deal will be Irish Shire which bought Baxalta to enter the leukemia fray. Its factor durg for hemophilia, Adynovi, just got EU okay last week. Columbine Capital cut SHPG to unfavorable from neutral today.

*Mazor Robotics is up 8.7% today on no new news, although it did tell the world earlier this month that it got 27 new orders for its robotic surgical assistance systems in Q4, 24 Mazor X and 3 Renaissance, and it predicted Q4 sales would be $19 mn and full year sales for 2017 $65 mn. MZOR is Israeli.


*B. Riley Brokers followed up on the Sanmina profits warning and decided that SANM's customer Nokia is doing ok and remains an outperform. Telcos are also expected to gain from higher interest rates because they can raise charges.

*The French daily, Le Monde, today reported that talks had been held between Orange and Deutsche Telecom. This boosted the share price of Banco Santander of Spain which was the intermediary. SAN can gain from renewed M&A in European telcos and is up 1.9%.

*Tencent co-led a $622 mn financing round for Chinese apartment rental startup Ziroom, along with Warburg Pincus and Sequioa Capital. It is becoming obvious that an on-line service that exists will be copied by one of the Chinese tech leaders. China in fact has overbuilt apartment buildings in the bulk of housing markets under the grandiose visions of local politicians.

*NTT Docomo of Japan was downrated by HSBC analysts to hold from buy. DCM is the leading cellphone operator.

*Jim Cramer citing “Sarge” Guilfoyle today picks Infosys as a way to buy the alleged Davos designation of India as a superpower. While I think that the parallel with China is overdone, INFY is a tech firm whose clout extends well beyond Indian borders. Separately Mr Cramer says that even at $12.99 plus tax, Amazon Prime is still cheap. I disagree.


*New CEO Phil Goldstein at Mexican Equity & Income Fund announced a tender offer for up to 5% (367,170 shares) of MCE at 95% of NAV. The offer will expire Feb. 23 but may be extended. The price will be determined by how MXE trades. The idea is to reduce the discount but Phil is also looking after his own position as a fund of funds investor though his Bulldog Investors. Maria Eugenia Pichardo stepped down as CEO at MXE last year because of potential conflicts of interest between the US-listed fund and here firm's operating of investment vehicles in Mexico which wdas blamed on another fund of funds investor, Barry Olliff who runs fund of funds City of London Investment Trust in Britain, CTY.

Disclosure: None.

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