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Donkey Kong

Donkey Kong
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  • 3 Reasons Why You Should Buy Yelp [View article]
    With respect to high-growth, emerging technology stocks, we prefer to use tried and true valuation methodologies like customers per click and page views in order to arrive at fair value.
    Apr 10 04:48 PM | Likes Like |Link to Comment
  • 3 Reasons Why You Should Buy Yelp [View article]
    YELP is clearly in the sweet-spot for "GAAP-style" investors (Growth At Any Price).
    Apr 10 08:40 AM | 2 Likes Like |Link to Comment
  • DigitalGlobe sells off following Google-Skybox report [View news story]
    An interesting rant, but your comment about the CFO being fired is incorrect. It was the former Controller and Chief Accounting Officer (CAO), Susan M. Fox, who was replaced (see Form 8-K filed, 3/3/14).

    Remember, facts do matter.
    Apr 8 09:54 PM | Likes Like |Link to Comment
  • Mallinckrodt Transfers Questcor's Risk Onto Its Shareholders [View article]
    I'm not sure why you are obsessing over semantics with respect to "buyout" vs. "merger". The only people that used the term "buyout" were the idiots in the financial and MSM media. The headline in MNK's press release used the word "acquisition" which is absolutely correct since MNK is the legal acquirer in this cash & stock merger transaction with QCOR. Current MNK shareholders will own 50.5% of the combined company while current QCOR shareholders will own 49.5%. The components of the merger consideration (as well as the word "merger") and the respective pro-forma ownership percentages are outlined in the text of the press release. There is nothing misleading in the press release and it would appear you are tying to make something out of nothing.

    In addition, you imply that QCOR is selling at a low price (contradicting your whole short thesis) which also raises red flags. I would concur that $86.10 is too low if the merger consideration was 100% cash. With MNK-QCOR, 65% or $56.10 of the value received by QCOR shareholders will be in the form of MNK stock and allows them to participate in the future growth prospects of Newco (combined MNK-QCOR). The question you should have asked, but didn't is whether an existing QCOR shareholder would rather own 100% of QCOR or 49.5% of Newco.
    Apr 8 01:18 PM | 14 Likes Like |Link to Comment
  • Why Jacobs Engineering Will Probably Beat The Market [View article]
    Why Jacobs Engineering Will Probably Beat The Market --

    Premise #1: the U.S. stock market will be higher on a nominal basis 3 years from now.

    Premise #2: JEC current beta = 1.69 and remains fairly stable into the future.

    Conclusion: JEC should probably beat the market on a non-risk adjusted basis assuming premise #1 and premise #2 turn out to be true.
    Mar 8 12:37 PM | Likes Like |Link to Comment
  • Questcor: Still Too Good To Be True? [View article]
    Thank you for regurgitating today's Citron article. My only question - Why did you stop at the third "massive" in the title?

    "Questcor Stock Is A Massive, Massive, Massive, Massive, Massive, Massive Risk With Potential 100% Downside" would have better made your case.

    I'm glad I could put $0.01 in your pocket.
    Feb 27 12:33 PM | 9 Likes Like |Link to Comment
  • A Short Case For PDL Biopharma: Why The Company Is Worth Less Than $5 A Share [View article]
    Thanks for providing more detail with respect to your statement that management spent an incremental $30 million in conjunction with the recent convertible bond offering. I'm not sure the $10 million underwriting fee is an "incremental cost". It would be great for issuers if investment banks would underwrite debt & equity offerings for free, but I'm betting that will not happen anytime soon. Also, a 3.00% underwriting fee is pretty standard for a sub $1 billion convertible bond offering for a non-investment grade issuer.

    I'm not sure why you are also lambasting management for spending $20 million to put a hedge in place for the newly issued convertible. The hedge for the 4.00% convertible notes effectively increases the initial conversion price from $9.17 to $10.36 and seems like a prudent course of action. You were critical of the dilution incurred by PDLI by effectively paying a 55% premium to retire $130 million face amount of the 2.875% notes due 2/15/15 so I'm curious why you are not more positive on the hedge transaction (Note - with a current conversion price of $5.48, the 2.875% bonds are deeply in the money hence they trade at a dollar price of approximately $155. These bonds also have a mechanism that downward adjusts the conversion premium with each quarterly dividend payment. The initial conversion premium at issuance was $6.59. The new 4.00% convertible notes do not contain this feature which is a big plus from a dilution standpoint).

    Given you bearish outlook, I would think a pair trade of long the 4.00% convertible notes & short the equity would be much more economical than simply long puts + short the equity. Maybe you have another offsetting long position to your PDLI short.
    Feb 19 01:36 AM | Likes Like |Link to Comment
  • A Short Case For PDL Biopharma: Why The Company Is Worth Less Than $5 A Share [View article]
    I'm not sure you really covered any new ground with respect to the bear case thesis, but at least you provided some quantitative support to your analysis. Most of the recent PDLI articles on SA are sorely lacking in this respect (e.g. Queen et al patents expire in 2 years so intrinsic value is well below current market price is NOT quantitative analysis). A couple of questions for you:

    (1) What is the average cost of your short position?

    (2) What is the strike & expiration of your PDLI puts?

    (3) How did you come up with your $30 MM incremental cost figure for the recent PDLI convertible bond offering?

    I agree with your statement that most of the PDLI short interest is driven by hedge funds. However, I question your use of the descriptive term "smart money". Zero Hedge published an article last week that referenced an FT article about hedge fund performance since inception. It showed how the top 20 hedge funds have made about 43% of all the money made by investors in more than 7,000 hedge funds. Unless Ray Dalio, George Soros, or Seth Klarman are currently shorting PDLI, I would argue that "smart money" is nothing more than a self-anointed title in most instances.
    Feb 18 05:25 PM | 4 Likes Like |Link to Comment
  • PDL Biopharma: Agreement With Genentech And Roche Is A Net Negative [View article]
    You clearly believe that PDLI is (still?) overvalued, but you never actually provided any indication of fair value as of today or on 12/31/15 when the Queen et al patents effectively expire.
    Based on the current portfolio of assets and the agreements in place, our analysis shows that PDLI is currently worth approximately $8.30 per share including dividends under a liquidation scenario over the next two years (using net cash flows on a non-NPV basis through 3/31/16). The $8.30 figure assumes that management makes no additional investments in income producing assets going forward which would obviously increase our valuation (i.e. assume an option value of zero) along with the potential for dividends beyond the liquidation period (2 years).
    I think it would be helpful if you shared more detailed thoughts with respect to your valuation and the methodology behind it (I assume you have a ton of analytical work that supports your article). It would appear that you have attributed minimal if any value to both the Depomed royalty agreement and the various senior secured investments made to date (BV of $90.8 MM), hence my interest in the details behind your valuation.
    Feb 6 09:00 AM | 1 Like Like |Link to Comment
  • PDL Biopharma: Agreement With Genentech And Roche Is A Net Negative [View article]
    There are numerous closed-end funds that trade at a premium to NAV though I assume you would not be inclined to purchase any of them. Is it then your position that PDLI is not really an operating company, but simply an investment fund and therefore should never trade at a premium to its NAV / liquidation value?
    If so, then I understand why you believe that PDLI should be worth no more than book value at 12/31/15. However, I'm not sure accounting book value is really a meaningful figure for PDLI or useful in conjunction with a valuation metric given the significant historical dividend payout, evolution of the business strategy over time, etc.
    To date, management has done an excellent job allocating capital and I believe that they will be able to deploy capital going forward that generates attractive returns for shareholders. Assuming PDLI does not reach my price target of $10.00 in the interim, I am willing to wait until 12/31/15 to see if these new investments result in a stock price higher than the current $7.65 while collecting $1.20 / per share in dividends over the next 2 years. I can only assume you believe that PDLI will be trading well below $7.65 on 12/31/15.
    Feb 5 02:17 PM | 2 Likes Like |Link to Comment
  • PDL Biopharma: Agreement With Genentech And Roche Is A Net Negative [View article]
    Your bank account analogy is a specious argument. You are comparing money sitting in a low-risk bank account earning next to nothing vs. actually investing the money in a higher return asset. I think your analysis effectively implies a de facto liquidation because you are assuming there is no guarantee that management will be successful in finding new investments that generate premium returns (zero option value) and the stock is overvalued because it exceeds the current liquidation value.
    Another way to think of about value could be utilizing the PVGO methodology. The value of PDLI is comprised of run-rate earnings / cash flows plus the present value of the future growth opportunities (PVGO). You may argue that run-rate earnings (visible cash flows) are low and that the majority of the current stock price is comprised of the PVGO which are simply too cloudy for your liking.
    Feb 5 11:31 AM | 2 Likes Like |Link to Comment
  • PDL Biopharma: Agreement With Genentech And Roche Is A Net Negative [View article]
    There is nothing philosophically wrong with my original questions. First, there are thousands of public companies that generate above-market returns on capital / equity. If this were not the case, there would be no economic reason for these companies to be in business and no public company would ever trade at a premium to book value. Second, your analysis assumes only one course for PDLI going forward - the Queen et al patents expire and the company essentially liquidates at a value below the current stock price.
    Management has stated its intention to continue operations beyond 2016 based on the desire of its shareholders. Therefore, I believe my two questions are spot-on. Can management continue to assemble an attractive portfolio of assets over the next two years (prior to the final royalty payments in Q1 2016)? Will this new portfolio of assests generate returns at or in excess of those historically?
    Feb 5 10:37 AM | 2 Likes Like |Link to Comment
  • PDL Biopharma: Agreement With Genentech And Roche Is A Net Negative [View article]
    A 2% short position is fairly typical in a long / short portfolio. What I really wanted to know was how many actual shares you were able to short in the pre-market (PDLI is not exactly FB when it comes to pre-market trading volume).

    I agree with your statement that the option value is now gone (I stated back on 12/3/13 that the probability of huge settlement from Roche-Genentech and a subsequent special dividend were low) and the stock certainly got ahead of itself when it touched $10.21 in early December 2013 on hopes of a big settlement award.

    From our perspective, there are two major questions facing PDLI. First, can management replace the royalty cash flows and remake the investment portfolio prior to the expiration of the Queen et al patents by Q1 2016 (2-years). Second, assuming management can successfully transition to a bio-tech BDC, will the new investment portfolio generate returns commensurate with those historically from the Queen et al patents.
    Feb 5 09:44 AM | Likes Like |Link to Comment
  • PDL Biopharma: Agreement With Genentech And Roche Is A Net Negative [View article]
    Similar to the statement in your article that it is impossible to verify management's claim of higher royalty rates from Roche-Genentech going forward, it's impossible to verify your claim of shorting PDLI @ $9.45 during pre-market trading on 2/3/14. If I recall correctly, the post-announcement pre-market reaction on 2/3/14 was rightly benign (while $9.45 represents a 3.85% gain over the prior Friday's closing price of $9.10). I'll just assume that the levels you quoted are the truth.
    I also had a couple of follow-up questions for you:
    How many shares did you short at $9.45 in the pre-market?
    Have you already covered your short? You said in your comment above that you had already taken "measures to insure a gain".
    Feb 5 09:11 AM | Likes Like |Link to Comment
  • PDL BioPharma settles litigation with Genentech, Roche [View news story]
    Jack: Assumed you doubled down today at $8.88 a share. My comments above were essentially a follow-up to thoughts I shared back on 12/3/13 when PDLI was trading north of $10 and the stock was up almost 25% in less than six weeks. Expectations (e.g. $1 billion litigation settlement vs. Roche/Genentech resulting in a huge special dividend) seem grossly inflated at that time.
    We have been long PDLI since November 2010 at an average cost basis of $5.09 a share and are currently short the May 2013 $10 calls. I certainly understand the risks facing PDLI as management remakes the company given the roll-off of the Queens et al patent royalties by Q1 2016. Management has done an excellent job, but I'm not convinced the "new company" will generate returns commensurate with those achieved historically.
    At today's closing price of $8.90, I think PDLI offers average risk / reward with 20% potential upside excluding dividends and probably 10% downside. It's not an attractive short from our perspective given the 20%+ short interest and 6.75% dividend yield.
    We are sellers north of $10 a share (hence the short call position) which would represent a tripling of our investment on a total return basis over the past 3 years.
    Feb 3 11:36 PM | Likes Like |Link to Comment