Accipiter Capital is an activist hedge fund founded by Gabe Hoffman in 2002. Prior to starting Accipiter, Hoffman worked at Welch Capital Partners covering healthcare stocks. The most distinctive characteristic of Accipiter is that it is an activist hedge fund like Bill Ackman’s Pershing Square. We like activist hedge funds because activist investing requires additional skills and when done right yields much higher returns. It is also easier to imitate activist investors because they have to report their large activist investments within 10 days. The downside of imitating activist investors is that there are several other people doing the same thing and this may push prices higher as soon as an 13D form is filed.
Last year on March 10th Accipiter filed a 13D firm disclosing that it owns 13.09% of Orchid Cellmark’s (ORCH) outstanding shares. ORCH’s average stock price during the 10 days prior to this filing was around $1.45. The stock price closed at $1.59 on March 10th. So, investors who imitated Accipiter had to pay at least a 10% premium over the prevailing price before the filing. The critical question is this: Does it still make sense to pay a 10% premium to imitate Accipiter?
If you are a small investor and have instant access to 13D filings, you could have initiated a small position in ORCH on March 10th. If you were slow or had to deplow $100K or more, the premium you had to pay would actually be around 20%. ORCH closed at $1.76 on March 11th, 2010. By the end of April ORCH’s stock price reached $2 per share. However, nothing significant really happened here and the stock price went down to $1.35 by the end of August as recession expectations peaked in the market. By the end of November, ORCH reached $1.60. Investors who were able to buy this stock on March 10th didn’t make anything in 8 months. Investors who bought it on March 11th were still under water at the end of November.
However, the stock prices started to climb in December and reached $2 by the end of 2010. Then it stayed there until April 5th. On April 6th LabCorp (LH) announced that it will buy ORCH for $2.80 in cash tender offer.
On Friday Accipiter filed an amendment to its original 13D filing. It stated that it tendered all of its 3.9 Million ORCH shares. This means Accipiter made nearly 95% from its ORCH investment in 15 months. Investors who imitated Accipiter immediately made 75% if they were patient enough.
We didn’t cherry pick this example to show that imitating hedge funds could yield high returns. We will cover other activist investments, so you can drive your own conclusions.