Performance – May 2020

 

During May 2020 we've posted 9 new ideas.

 

Tracking Portfolio - May'20 Return +10%

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 - May'20

The graph below details the individual MoM performance of all the active/closed cases (excluding Quick Ideas) during May.

 

Ideas Closed During May 2020

Li & Fung (0494.HK) +13% in One Month
Chinese supply chain management firm Li & Fung announced a privatization by management and Singaporean private equity company GLP Group. The risk of buyers walking away seemed minimal, however, the main issue lied with shareholder approval condition - only 6.67% of votes are required to break the transaction. Nonetheless, given multi-year underperformance by LF, covid impact on the business, and the offer price being above pre-covid levels, shareholders were expected to be in favor of getting cashed out. Eventually, shareholders approved the transaction, and the scheme closed by the end of May.

Zyla Life (ZCOR) +26% in One Month
Zyla Life agreed to be acquired by Assertio Pharma for 2.5 ASRT per each ZCOR share (two nano-cap specialty pharma companies). Approval was required from shareholders of both parties, while the support of 51% of ZCOR shareholders was already in the pocket. The main uncertainty lied around the ASRT shareholders' vote, although 6 major Assertio shareholders (owned 40%) seemed quite likely to vote in favor. Shareholders have approved the merger and the transaction was finalized shortly after anyways resulting in 26% return over a month.

Adesto Technologies (IOTS) +10% in 1.5 Month
An all-cash cross-border semiconductor merger, where the spread widened significantly (from initial 2% to 14%) with the covid-19 induced market panic. Transaction made sense from a strategic standpoint, while both CFIUS and Adesto shareholders' approvals seemed likely to get satisfied. Eventually, shareholders approved the transaction, and the spread shrunk to 4%. Given further uncertainties regarding the covid-19 effect on IOTS business, it was decided to close the idea. The same 4% spread still remains.

Texas Capital Bancshares (TCBI) -16% in 3 Days
Texas Capital and Independent Bank Group signed all-stock merger agreement in Dec'19. The spread expanded from 1% to 13% with banking sector sell-off in March. Approval by shareholders of both companies was required however meeting dates had not been set yet. The transaction seemed to make a lot of sense from a strategic perspective and downside seemed limited as the stock of both banks declined more than the industry average. The merger was reaffirmed in Q1 earnings press releases, however, IBTX management was very reluctant to discuss anything merger-related on the call (and TCBI avoided the call altogether). Just 3 days after posting the write-up, the banks have mutually terminated the merger citing covid-19 impact. As expected, TCBI shares did not decline materially after the announcement, however, large losses (-16%) resulted from the hedged IBTX position.

 

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