During January 2020 we’ve posted 17 new ideas.
Tracking Portfolio – Jan’20 Return +2%
Disclaimer: These are not actual trading results. Tracking Portfolio is only an information tool to indicate the aggregate performance of special situation investments published on this website. Quick Ideas are not part of the tracking portfolio. See full disclaimer here.
Individual Performance Split – Jan’20
The graph below details the individual MoM performance of all the active/closed cases (excluding Quick Ideas) during January.
Ideas Closed During January 2020
SORL Auto Parts (SORL) +5% in one month
This was a rather standard case of U.S. listed Chinese company getting taken private by a controlling shareholder. This time the offer came from insiders with 59% stake. The spread likely reflected limited trust by U.S. investors towards similar management buyouts of China based micro-cap names. It seemed that minority shareholder approval will not be an issue, so the main risk was that management will cancel their offer. Some recent data on Chinese companies’ privatization transactions indicated that almost every case with a definitive agreement was bound to close. Eventually the spread has narrowed down from 8% to 3%. Given that at least some cancellation risk was still in place, while closing was estimated in Q2, it seemed prudent to safely close the position and secure the profit.
Home Capital Group (HCG.TO) +C$140 in one month
Home Capital Group launched an odd-lot dutch tender offer to buyback c. 7.5% of outstanding shares (C$150m in total). The tender has closed at the lower price limit with 53% proration. Odd-lots were accepted on a priority basis.
Pacific Biosciences (PACB) -32% in over 1 year
DNA sequencing machine maker Illumina was acquiring biotechnology company Pacific Biosciences at $8 per share in cash. Shareholders had approved the transaction, however the main issue lied with regulatory consent. It seemed that as both companies operate on different technologies (short read vs long read gene sequencing) and operate in somewhat different markets – merger should not cause reduced competition. The buyer also looked confident on the approval and even agreed to pay a substantial termination fee ($98m). Nonetheless, regulators saw it differently and after a prolonged review (over 1 year) have finally decided to block the transaction.
Summit Bancshares (SMAL) -3% in 6 months
Nano-cap bank Summit Bancshares was getting acquired by privately held Faciam Holdings. Under the new business plan for SMAL Faciam planned to start providing services to marijuana based businesses, so this was a bet that this merger will mark the first time regulators officially approve cannabis banking. Although regulators appeared to be inclined to deny of the application, Faciam/SMAL continued the dialogue with FDIC arguing that many other banks provide services to marijuana industry anyways just without the official request. Nonetheless, as it became clear that the approval will not be received within the expected time-frame (if ever received at all) SMAL has decided to terminate the merger. This trade was backed by strong financial performance of SMAL and as expected the downside turned out to be minimal.