Sohn Investment Conference London Oct 2013 – Hedge Funds vs Pediatric Cancer

First Published in BBeyond Magazine 1/2014 – Download PDF


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Conversations with John Altorelli – Wall Street’s leading corporate lawyer

December 25, 2013 Leave a comment

First Published in BBeyond Magazine October 2013 – Download PDF – John Altorelli

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Dell LBO Update:

July 21, 2013 Leave a comment

As an update to my previous post regarding the Dell LBO, I received the Notice of Special Meeting of Stockholders in the post sometime back and am entitled to vote on the buyout for which I intend to vote against. The meeting was postponed, but with rumors that Dell and SL  not seeking additional financing. Either this is a head fake, and Dell’s already got some cash reserve for a last minute deal sweetener, which really should tow this buyout past the finish line. An offer of 14 would seal the deal without doubt (since Icahn offered 14 with public stub and claimed it to be superior). Perhaps they may offer 13.8 just before the next meeting (which was meant to have occurred last week)?  A marginally increased offer and Michael Dell’s personal last minute ‘wheeling and dealing’  and arm twisting should easily suffice. Because frankly, I believe the shareholders fear the failure of Dell – SL buyout as much as they fear Icahn being in control. An increased offer would be acknowledging Dell – SL could have offered higher in the first place – a sort of tacit acknowledgement that Icahn the vulture did provide a positive service to shareholders (not to mentioned his own profit). So I suspect, if a higher offer is to come, it will not allow anyone the chance to counter offer. Plus Dell & SL is so close to the finish line now that any PR damage or additional costs from a deal sweetener that could shut dissenting shareholders and Icahn up is probably worth paying for in their opinion.

I previously accumulated shares before the buyout was announced and added to my position (past the voting cut-off date). As it stands, if the buyout goes through at 13.65, it is not in my interest because I bought a lot of cheap put options (Sep 20 – 13 Puts, Jan 17 – 13 Puts, Feb 21 – 13 Puts). The profits will be offset by the losses arising from options expiring worthless. However, if  shareholders vote down the buyout with the intention of supporting Icahn, they still have to ‘vote in’ Icahn’s proposal which is an even longer shot by any yardstick. The interim volatility will benefit my options position. Dell as we know it will be ‘destroyed’, saddled with debt and run by a ‘corporate raider’. Perhaps profitable parts sold off? The fact of the matter is – right now, Dell probably has more ‘intrinsic value’ to interested buyers if it was broken up and sold in pieces . A recent FT article published 3 days ago basically said the exact same things that I wrote months earlier, including using the exact sentence  almost verbatim “Dell’s legacy is at stake…”.

As much as I’d like Dell to succeed, I am voting against it (in my own ‘selfish’ interest). I would not be surprised if other shareholders think and do the same. Which is why I believe any marginal last minute sweetener would secure Dell-SL the successful buyout.

I did not once look at the valuations, financial models or forecasts (I just didn’t have the time). Price action and game theory told me enough. Anyone trading this on fundamental valuation would have gotten crushed. The key was buying the put options for next to nothing when Dell was trading above offer price (market expected Dell-SL to increase their bid), when that did not happen and sentiment turned I accumulated more Dell shares – slowly levering up my position every time the market sentiment changed.

UPDATE: Well, guess what? Dell offered 13.75 + special dividends of 0.13, and Q3 dividend of 0.08 which will still be paid (since this has been dragging on) for effectively what is just shy of an all out offer of 14 which I wrote will all but surely seal the deal. If you read my original post, everything had came to past… Icahn was in for the quick buck, and he was right. The problem for Michael was, his cards were pretty awful to begin with even though he could call Icahn’s bluff. Icahn just had the upperhand all along. Icahn had the chips and was willing to go all in, Michael knew that. Problem was,.. Icahn knew that Michael knew that too.

Conversations with John D’Agostino

June 12, 2013 1 comment

First published in BBeyond Magazine, May 2013. (Download PDF)

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Interview with T Boone Pickens

June 12, 2013 Leave a comment

First published in BBeyond Magazine  (Download PDF)

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Interview with H.E. Ambassador Liu Xiaoming

June 12, 2013 1 comment

First published on BBeyond Magazine February 2013. (Download PDF)

BBeyond Magazine Feb 2013_Page_1

FT Game Changers

May 27, 2013 2 comments

Henry Kravis & George Roberts of KKR. Copyright belongs to Financial Times Limited. 

Categories: Economics, Finance, Investing

Malaysia’s General Election

April 20, 2013 Leave a comment

Malaysia is facing its 13th general election. Although I do not follow Malaysian politics much, my good friend and former classmate Zairil K. Johari is running for office. The interesting part that got the nation talking is the fact that Zairil, a Muslim, joined the Democratic Action Party, a party predominantly associated with Chinese Malaysians. Zairil’s father, the late Tan Sri Khir Johari, was an UMNO (United Malays National Organisation) stalwart. UMNO is Malaysia’s largest political party and has ruled the country (as part of the National Front) since independence. The late Khir Johari was instrumental in helping Malaya achieve independence from the British in 1957, having previously fought the communists in Malaya after Japan surrendered to the Allied forces – a true freedom fighter. Zairil’s message is that ‘the ruling coalition has lost its way and is no longer the same party that his father helped build’. Zairil’s story is unique as he appeals to both the Malay, Chinese and Indian population. In a multicultured country where decades of affirmative action has stymied the country’s growth, Zairil’s ability to reach out to voters across the racial divide at the grass-root level forms part of his appeal. A Malaysian first and a Malay second, his eloquence and elocution in Bahasa, English and Chinese could easily pass him as a native speaker in all three languages. Zairil is probably the first Malaysian politician with the charisma, intelligence and virtue to have the ability to reach out to all ethnic groups. After all, his vision of a country where one’s religion or race should have no bearing on one’s success resonates well with a growing population of young voters disenfranchised with the government.  I have known Zairil for a long time and he is a man of true integrity. Someone who is not afraid to do what is ‘right’ as opposed to what is popular. He could have an easy ride by joining the ruling coalition and would have quickly worked his way up the ladder. Yet, he chose to join the opposition for what he believes in. Zairil is also one of the brightest yet most humble people I know. It is my sincere belief that he will go far in politics and make a significant contribution to Malaysia. Good Luck Zairil.

zairil

To follow Zairil’s campaign…. http://www.zairil.com/

UPDATE 05/05/2013: Zairil won his Parliamentary seat, defeating the incumbent – a 54-year-old veteran politician with a landslide victory of 45,591 to 12,813 votes. A majority of 32,778. The future is bright for this rising star. Congratulations to The Rt. Hon Zairil Khir Johari, MP (or in Malay Y.B Zairil Khir Johari, MP)

UPS and TNTE failed merger counter arbitrage

January 15, 2013 Leave a comment

When mergers and acquisitions fail it turns to Murders & Executions for merg-arb desks. And when there is blood on the streets, even if it is your own blood, buy…

When the news of European Union anti-trust regulators blocking the potential UPS and TNT Express merger filtered through the newswire, the markets were not open. Prior to this, I have neither followed this industry nor the two respective companies. I brought up the charts of TNTE and noted the “undisturbed price” of TNTE, the target company that was being acquired, was around 6 Euros. The offer price by UPS was 9.5 per share. The shares of TNTE were last trading around 8.5 Euros. I made a mental note that if TNTE fell way below its undisturbed price – somewhere in the region of 20-25% below its undisturbed price of 6 euros, I would fade the trade and long it. This 20-25% represents my margin of safety. Implicit in this assumption and my trade rationale is that the market is fairly efficient in pricing-in information – that the undisturbed price represents fair value given TNTE’s prospects and outlook.   As it turned out, TNTE opened at 4.160 when trading resumed. I transmitted a market buy order (yeah, I know I just broke my own rule of never using market orders – but hey this is a “Special Situation” and rules are made to be broken) and got filled at 4.35. The following day, I closed the position out at 5.10. Although this is only a small stake and I made 17% return on capital with limited downside risk in one day, I never actively sought this trade out. Had TNTE opened down at 5 Euros or even 5.5, I probably would not have put this trade on. I did not have time to look at the fundamentals of either company. All I knew was, the merge-arb guys who believed the deal was going through would be crushed and had to dump their TNTE holdings in a market with no buyers thus depressing the stock way beyond its ‘fair value’. What is fair value? I don’t know. It is a subjective concept.  As the day wore on and I scanned the newswire, I noted that even though TNTE was trading at 8.5 before the announcement by EU regulators, the market was pricing in information that told me the market is not extremely optimistic that the deal would go through. Needless to say, this did not affect my rationale as I was already in the trade and my trade was based solely on a special situation and understanding of the dynamics of strategies pursued by merg-arb desks. Everyone knew TNTE would slump on the open, the question was by how much? And is that margin of safety something I was comfortable with? Was I willing to lose half my capital staked on this trade if it opened at 4 and traded down to 2? Compared to making 50% return if it traded back to 6? Which was a more likely scenario considering UPS made an offer of 9.5? As it turned out, it was a trade that I was comfortable with and made a quick profit. Why did I not buy pre-open with the chance of getting filled at a lower price say around 4.160 and maximise my profit? Well, I let the market tell me what to do. It could have easily opened at 4.16 and traded down to say 3.75. This would have messed up my conviction and trading psychology. Equally why did I take profits so early? Well, I recall a ‘market wizard’ once noted “the first 1/8 and the last 1/8 of a move are the most expensive ones”. I am not trading to be right and I am not great at timing the inflection point of the market. I am trading to be profitable and was happy with the return.

 

 

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Use your “gifts”

December 23, 2012 1 comment

It is the season where we receive Christmas presents and make New Year’s resolutions – a time where we hope to receive gifts that we secretly desire and make determinations to achieve new goals. Most of us hope to do things like pick up a new hobby, lose weight or sign up to the gym, obtain a new skill and learn or do something completely new. I’d like to share a story that had a profound impact on me.

When I was 10 years old, a friend of mine (I say a ‘friend of mine’ because my mum might read this one day) was looking forward to Christmas. As with all kids, he was filled with anticipation on Christmas morning. When he woke up, he ran downstairs towards the Christmas tree and started unwrapping all the Christmas gifts he received. He went to work on his first present and ripped the wrapping paper apart – “Hey, I received this present last year!!!” he thought to himself. He proceeded to unbox his second present, “Hey, I received this present last year too!!!” he said out loud. He went to the third one, “Hey, they gave me this last year too!” He opened the fourth one, “Hey, it’s the same gift I got last year!” He opened the fifth one, “Hey, these are all the gifts I got from last year!” He ran upstairs crying “Mommy, mommy, why did you give me the same gifts I got from last year? You simply took last year’s gifts, wrapped it up, and gave it to me all over again! Why? Why would you do that?” His mother replied “it’s because you haven’t used them yet! Use your gifts this year and you shall receive more next year.”

Now, I thought that was cruel. But it was the best lesson that I, (I meant he…) ever learnt. We should learn to appreciate what we have (or had). Life will not give you more if you do not make use of what you already have. Use your ‘gifts’ this year and you will receive more next year.

Merry Christmas & Happy New Year!

Best wishes,

David Wong

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