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Última actualización: 14:36 / Wednesday, 19 de June de 2019
Column by Gabelli Funds

April Proved Possitive for Merger Arbitrage

Photo: GoranH / Pixabay CC0 Public Domain
By Michael Gabelli

Merger performance in April was bolstered by deals that progressed towards completion, as well as a new investment in Anadarko Petroleum that received an overbid shortly after announcing an agreement to be acquired by Chevron. More specifically:

  • On April 12, Anadarko Petroleum (APC-NYSE) agreed to be acquired by integrated energy company Chevron for $16.25 cash and 0.3869 shares of Chevron common stock per share of Anadarko, in a deal valued at about $48 billion. Anadarko is an explorer and producer of oil and natural gas globally, but with prized assets in U.S. shale formations. On April 24, shortly after announcing its tie-up with Chevron, Anadarko received an unsolicited bid to be acquired by Occidental Petroleum for $38 cash and 0.6094 shares of Occidental per share of Anadarko, which valued APC at about $55 billion. It was later revealed that Warren Buffett’s Berkshire Hathaway committed $10 billion to back Occidental’s bid to acquire Anadarko against Chevron, which has an enterprise value 5 times greater than Occidental. Anadarko is currently evaluating Occidental’s proposal. We benefited from our investment in Anadarko in April.
  • Versum Materials (VSM-NYSE), a manufacturer of chemicals and components that are used to make semiconductors, LED displays and other technological applications, agreed to be acquired by Merck KGaA under improved terms. In January 2019, Versum agreed to be acquired by Entegris in an all-stock transaction that valued Versum at about $37 per share. In late-February Merck made an unsolicited proposal to acquire Versum for $48 cash per share, which led to an agreement in April for Versum to be acquired by Merck for $53 cash per share, or about $6 billion. The transaction is expected to close in the second half of 2019.

Other notable events in April included:

  • Altaba (AABA-NASDAQ) announced its intention to liquidate and distribute cash and shares from its 11% ownership stake in Chinese online retailer Alibaba. Altaba is a closed-end investment fund that owns shares of Alibaba, cash and intellectual property and traces its roots to online services provider Yahoo! Inc. The company estimates total proceeds from liquidation are expected to be approximately $40 billion and the liquidation is subject to Altaba shareholder approval.
  • Goldcorp, Inc. (GG-NYSE), a gold-mining company with global operations, was acquired by Newmont Gold in an all-stock transaction valued at $12 billion. While the Goldcorp acquisition was pending, Newmont received an unsolicited proposal to be acquired by Barrick Gold, but Newmont and Barrick instead agreed to form a joint venture of the companies’ gold mining assets in Nevada.
  • Belmond Ltd. (BEL-NYSE), an owner and operator of luxury hotels worldwide, was acquired by luxury goods group LVMH Moet Hennessy Louis Vuitton for $25.00 cash per share, or about $4 billion.

Thanks to a robust market place, we expect ongoing deal activity will provide further prospects to generate returns uncorrelated to the market.

Column by Gabelli Funds, written by Michael Gabelli

 

To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:

GAMCO MERGER ARBITRAGE

GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.

Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.

Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.

Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of  approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.

Class I USD - LU0687944552
Class I EUR - LU0687944396
Class A USD - LU0687943745
Class A EUR - LU0687943661
Class R USD - LU1453360825
Class R EUR - LU1453361476

GAMCO ALL CAP VALUE

The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.

GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise.  The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach:  free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.

Class I USD - LU1216601648
Class I EUR - LU1216601564
Class A USD - LU1216600913
Class A EUR - LU1216600673
Class R USD - LU1453359900
Class R EUR - LU1453360155

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