The most dangerous four words in English, we're told, are “it's different this time.”
Having run a global investing newsletter for 22 years, I can spot what's unusual compared to past decades. The new trend in 2011 is clear. This year is not a repeat of 2008, despite the continued politico-economic crisis on both sides of the pond, concern about banks and bond markets, the range-bound stock market, and the continued lag in hiring and home-construction.
What is different this time is the urge to merge. Global Investing for 22 years has encouraged its readers to buy smaller, less-well-known shares around the open markets of the world. We look for undervalued stocks, using our team of savvy reporters to dig them out.
In a typical year we might see one takeover bid for one of our holdings. Or none. This year, to date, we have seen seven (or eight if you count Crucell (CRXL), a stock I sold too soon.) Moreover, one of our shares is in bidding war itself (as a buyer) and another two did transformative takeovers this year. That is a record. It is also telling us that something is different about the markets in 2011.
First of all, without the particulars, the stocks being sought are not from all sectors across the board. They're mostly in pharmaceuticals and biotech, and financial services, with a scattering of shares from heavy industry and one in consumer goods, beaten down sectors where acquirers find bargains.
They are all from developed country markets, open to the world. And most are companies you have never heard of. You will probably not own them through mutual funds, which do not drill down that deeply, to say nothing of index-tracking exchange-traded funds, which make money by ignoring small caps it's expensive for them to buy. And of course they were priced way too low when we bought our way in.
This note results from news that Britain's Phoenix Group PLC is being bid for. PHNX is a specialty life insurance consolidation company which bought with-profit life insurance policies from an outfit called Pearl, and writes no new policies. It was found by Martin Ferera who worked with its CEO at an earlier job before moving to Canada. This was not an insider trade, except that Martin know the skills of new CEO Clive Bannister. We bought it in England as there are no ADRs. Today its chairman and board confirmed that it is in play:
The Board has held discussions with Resolution Ltd concerning a possible combination of their respective businesses, however now terminated. Phoenix confirms that it has also received certain other approaches concerning potential offers for the Company, including from CVC Capital Partners. The Board is continuing to consider whether CVC’s approach may form the basis of an offer that is appropriate to recommend to Phoenix’s shareholders, although there can be no certainty that any approach will lead to an offer being made. Further statements will be made if and when appropriate.
CVC is a UK private equity fund manager which last year joined forces with Apollo Mgm to take over Brit Insurance, another “zombie” life insurance fund. PHNX stock is up nearly 8% in London trading after opening up 12% while Resolution fell 3%. There are also rumors that a counter-bid may come from Swiss Re, according to an article in this week's Sunday Times of London, for which I used to write.