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Chris DeMuth Jr. is the founder of Rangeley Capital LLC. Rangeley is an investment firm that focuses on event driven, value-oriented investment opportunities. Rangeley Capital and his value investing forum, Sifting the World (StW), search the world for misplaced bets. Rangeley exploits them for... More
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  • A Look Back At 2014 (A Rough Draft) 12 comments
    Jan 8, 2014 4:48 PM | about stocks: FRX, RVBD, TEVA, IPO

    Year End Review

    As we approach the end of the first 2% of 2014, I would like to take a moment to reflect upon the highs and lows of the year. There are 247 trading days left so there may be a few remaining adjustments in the final draft, but here is the year in review thus far.


    On Wednesday, January 8, 2014, Forest Laboratories (NYSE:FRX) announced a promising and accretive deal to acquire privately held Aptalis. I applaud them for the deal; the equity market seems to like it too.


    On that same date, Riverbed Technology (NASDAQ:RVBD) received a $19 offer from our friends at Elliott Associates. When all is said and done, they may pay up as high as $22 or so. We have this in our sheets as an upside of $22 and downside of $15. We think that there is over a 95% of $19 or more and over a 65% of $21 or more by the end of the first quarter. So far so good and probably more to come:


    On the topic of Elliott Associates, I am a bit of a Paul Singer groupie. It would be fair to accuse me of being a generally disagreeable misanthropic curmudgeon who has at least something bad to say about almost anyone and yet here is someone who I admire on every conceivable metric. I agree wholeheartedly with his philanthropic, political, and investing priorities. I was a huge fan right up until the point when he more or less conquered a ship owned by the deadbeat Argentine government at which point my admiration was driven right over the edge into groupie territory. So, when we both stumble upon the same investment opportunity, I am gratified by the coincidence. Which brings me to Celesio (CLS; trades in Europe).

    Celesio has an offer for EUR 23 per share from McKesson (NYSE:MCK) and Mr. Singer holds a blocking stake which could prevent the deal from going through at that price. We did not tender our shares at 23 because we think that they are worth at least 25-26 to MCK if not more. This was an easy decision as we are perfectly happy to be holders. More to come on this over the course of the next day or two. But a bump is one reasonably likely outcome.


    Speaking of bumps… 2014 has been a bumpy year already with a competing bid for NuPathe Inc (PATH).

    It is reasonable to expect at least one or more subsequent bid and possibly yet one more additional bidder.

    Renaissance IPO ETF

    My short idea for 2014, the Renaissance IPO ETF (NYSEARCA:IPO), has been an abject failure to date.

    I make no excuses but hope that the back end 98% of the year will be more kind to this idea. Whatever enthusiasm I saw in the late 2013 IPO market continued right through 2014. Such a cold streak in recent short ideas is unfortunate. I am considering firing myself from shorting, but I think that I will merely place myself on probation because I am a both a forgiving employer and stubborn employee. Meanwhile, investors love stocks more than any time since the depths of the financial crisis (during which they were not so enthused).

    Sanofi SA (Value Right)

    As for my long idea for 2014, a Sanofi SA value right (NASDAQ:GCVRZ), is up over 6%. At $0.34, the position risks $0.34 and potentially gains $11.66. It probably gains $1.66. If I had a better idea, I would have offered it.


    Absurd even? Too soon to judge? Fair enough. For value and event strategies such as mine, the statistically significant period in which to judge returns is somewhere between three and five years. Anything that I need in shorter increments I keep in cash equivalents.

    Stocks: FRX, RVBD, TEVA, IPO
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Comments (12)
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  • Bram de Haas
    , contributor
    Comments (652) | Send Message
    Congrats on the first 2% Chris! A good start is a job half done.
    8 Jan 2014, 05:54 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11076) | Send Message
    Author’s reply » Thanks for the kind words. Best, -C
    8 Jan 2014, 06:14 PM Reply Like
  • 96815234
    , contributor
    Comments (2185) | Send Message
    Good luck in 2014 Chris!
    8 Jan 2014, 06:31 PM Reply Like
  • drew111
    , contributor
    Comments (514) | Send Message
    Chris, I laughed out loud at your Paul Singer comments. Hope you have a great year(and everyone else, for that matter.)


    Also congratulations and best wishes to your family reference the birth of your son.
    8 Jan 2014, 06:52 PM Reply Like
  • Mike Arnold
    , contributor
    Comments (2358) | Send Message
    This is great. Nice post. My question is: when does ALCS get a new takeover bid?
    9 Jan 2014, 12:46 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11076) | Send Message
    Author’s reply » I don't know but hopefully soon.
    9 Jan 2014, 06:07 AM Reply Like
  • bazooooka
    , contributor
    Comments (3686) | Send Message
    Chris, were the above ideas in the running for your "long idea of 2014"? Any other honorable mentions that nearly made the final cut?
    9 Jan 2014, 01:30 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11076) | Send Message
    Author’s reply » Yes, those are the key honorable mentions; shorting Bitcoins was the other honorable mention that didn't make it into this rundown.
    9 Jan 2014, 06:07 AM Reply Like
  • bazooooka
    , contributor
    Comments (3686) | Send Message
    Also, is your IPO short idea based on valuation of its constituency or is there also technical reasons why the ETF construct may under perform (like we have seen in the 2x and 3x type ETFs)?
    28 Jan 2014, 07:17 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11076) | Send Message
    Author’s reply » It is based upon the valuation of its constituency and the rolling catalysts of lockups rolling off.
    28 Jan 2014, 07:34 PM Reply Like
  • bazooooka
    , contributor
    Comments (3686) | Send Message
    I see - many of its top 10 holdings are already showing up on my short screens.

    28 Jan 2014, 08:06 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11076) | Send Message
    Author’s reply » Actavis in Talks to Buy Forest Labs for as Much as $25 Billion
    Dana Mattioli,
    Jonathan D. Rockoff and
    Dana Cimilluca
    Updated Feb. 18, 2014 12:11 a.m. ET


    Actavis PLC is in advanced talks to acquire rival drug maker Forest Laboratories Inc., in a deal that could value Forest at up to $25 billion, according to people familiar with the matter.


    The deal is expected to be announced as early as Tuesday, the people said. It's possible the talks could still fall apart.


    The proposed combination of Dublin-based Actavis and Forest, of New York, is partly designed to position the resulting company to deal with the changing health-care landscape in the U.S. Hospitals, insurers and doctors in the country are combining to make larger organizations that can negotiate directly to buy prescription drugs.


    A combined Actavis-Forest could offer a range of generic and brand-name medicines, reaping economies of scale of its own.


    Forest had a market capitalization of $19.3 billion as of Friday's close, compared with $33.4 billion for Actavis.


    Actavis is known for its generic drugs, but it recently bought Warner Chilcott, a provider of branded treatments for gastrointestinal and urological conditions.


    Forest also has a gastrointestinal business, including the constipation drug Linzess. Forest also sells a number of brand-name drugs for neurological conditions like depression, as well as Bystolic for hypertension.


    New Forest Chief Executive Brent Saunders would stay at the combined company, the people said. His exact role is still being worked out.


    One likely beneficiary of the sale is Carl Icahn, whose Icahn Associates owns 11.4% of Forest's shares, making it one of the company's largest shareholders. Mr. Icahn began agitating at Forest in 2011, but seemed placated by the company's appointment of Mr. Saunders as CEO. Still, he has held on to his stake in Forest.


    Paul Bisaro, chief executive of Actavis, has been doing deals to make the company a bigger player in the fiercely competitive drug markets. Starting with generic-drug maker Watson, the company has gobbled up rivals including Actavis, another generic-drug maker—whose name it took.


    Indeed, there has been a flurry of deals among midsize pharmaceutical companies, many of them producers of generic drugs, in the past year.


    Forest in January agreed to buy specialty-pharmaceutical company Aptalis Holdings Inc. for $2.9 billion from private-equity firm TPG.


    Forest has been looking to find new drugs to replace blockbusters, like the antidepressant Lexapro, that are facing competition from low-price generic versions. Some of the company's new drugs haven't met Wall Street expectations, and the U.S. Food and Drug Administration late last year delayed an approval decision on a schizophrenia treatment Forest is helping develop.


    Mr. Saunders, who was named CEO last year after a stint running eye-care company Bausch & Lomb, has outlined plans to cut $500 million in costs by 2016 while using Forest's cash to buy drugs it can fold into its portfolio. Mr. Saunders has said he wants to complement Linzess with other drugs treating gastrointestinal disorders with deals that boost earnings and cash flow.


    Mr. Saunders is no stranger to mergers and acquisitions, having agreed last year to sell Bausch & Lomb to Valeant Pharmaceuticals International Inc. for $8.7 billion including debt. According to one of the people, Mr. Saunders is expected to play a leading role at the combined company.


    The deal would come as a welcome relief for an M&A market that has been in the doldrums as a result of tepid economic growth and CEO and boardroom sentiment that still hasn't completely recovered from the financial crisis. But coming on the heals of Comcast Corp.'s agreement last week to buy Time Warner Cable Inc. for $45 billion, the deal could be a sign that there is hope the deals market will turn in a respectable performance on 2014.
    18 Feb 2014, 06:25 AM Reply Like
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