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Pharmacyclics (PCYC), DIRECTV (DTV), Actavis (ACT): Farallon Capital Betting On Merger Arb Plays

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Farallon Capital Management, the fund founded by Thomas Steyer in 1986, has filed its 13F for the reporting period of March 31, disclosing an equity portfolio valued at $6.85 billion as of the end of March. Farallon Capital employs different strategies including value investments, credit investments, merger arbitrage, and real estate-based investments in both developed and emerging markets. The fund is primarily invested in the consumer discretionary and healthcare sectors. The fund was managed by founder Thomas Steyer until October 2012 when Steyer decided to retire from Farallon to start engaging in political activism, particularly around encouraging the development and use of alternative energy. Pharmacyclics, Inc. (NASDAQ:PCYC)DIRECTV (NASDAQ:DTV)TRW Automotive Holdings Corp. (NYSE:TRW) and Actavis plc (NYSE:ACTwere the top stock holdings of Farallon in the most recent regulatory filing.


Farallon Capital employs roughly 160 people and has offices in San Francisco, London, Singapore, Hong Kong, Tokyo, and Sao Paulo. As such, Farallon Capital has the budget and resources to select only the best investment vehicles. At Insider Monkey we are following more than 700 hedge funds like Farallon Capital for this reason. By following the regulatory filings of these funds we do not have to pay high commission fees and still have access to their top stock picks. We have formed our small-cap strategy, which entails investing in the favorite small-cap picks of hedge funds, around this premise and because our research showed these small-cap stocks are historically their best-returning stock picks. Since its inception in August 2012, our small-cap strategy has returned 139%, beating the S&P 500 ETF (SPY) by over 80 percentage points (read more details here).

On the top spot in Farallon’s portfolio is Pharmacyclics, Inc. (NASDAQ:PCYC) in which Farallon initiated a new position of 1.94 million shares valued at $497.82 million during the first quarter of 2015. Pharmacyclics is the first of Farallon’s merger arbitrage plays and is expected to merge with AbbVie Inc (NYSE:ABBV) this month. Abbvie announced the acquisition of Pharmacyclics at the beginning of March and according to its announcement Pharmacyclics, Inc. (NASDAQ:PCYC)’s shareholders will be paid $261.25 per share, which includes a mix of cash and shares of AbbVie. The proposed purchase sets a market cap of nearly $21 billion on Pharmacyclics in comparison with its current market cap of $19.69 billion. Among the funds we track, Julian and Felix Baker’s Baker Bros. Advisors held 9.04 million shares of Pharmacyclics, Inc. (NASDAQ:PCYC) valued at $2.31 billion at the end of the first quarter.

DIRECTV (NASDAQ:DTV) is another merger arbitrage play and comes in at number two in terms of the top holdings of the investment manager. Farallon Capital holds 4.51 million shares of the digital television entertainment provider, with a value of $383.80 million as of the reporting period. Last year, AT&T made a bid of $48 billion to acquire DIRECTV (NASDAQ:DTV). Although Comcast Corporation (NASDAQ:CMCSA) and Time Warner Cable Inc (NYSE:TWC) (whose own merger attempt ultimately failed to materialize) have objections and the Federal Communications Commission is closely scrutinizing the acquisition, the two companies disclosed regulatory filings on May 15 to extend the former merger termination date and the prevailing belief is that the merger will be approved, with most analysts expecting the deal to be concluded in July. Warren Buffett’s Berkshire Hathaway is the major shareholder of DIRECTV (NASDAQ:DTV) with its investment of 31.35 million shares of the company valued at $2.67 billion at the end of the first quarter.

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