Shire PLC (ADR) (SHPG), Time Warner Cable (TWC): How John Paulson Got His Mojo Back

John Paulson’s funds posted strong returns in June, especially on the back of merger arbitrage plays, an activity in which Paulson has been involved for the last 20 years. The best performer was Paulson Enhanced, a merger arbitrage fund, which inched up by 6% over June, and 11.8% between January and June, almost doubling the S&P 500 (INDEXSP:.INX)’s return of 6% for the first six months of 2014. Let’s take a look at two of his biggest arbitrage plays in order to better understand how he achieved such returns.

Mr. Paulson was (or is) involved in two of the three biggest M&A deals of 2014: AbbVie Inc (NYSE:ABBV)’s acquisition of Shire PLC (ADR)(NASDAQ:SHPG), and Comcast Corporation (NASDAQ:CMCSA)’s purchase of Time Warner Cable (NYSE:TWC).

best gold ETF

The biggest transaction this year –so far- is that of AbbVie Inc (NYSE:ABBV), which has recently reached a deal to acquire Shire PLC (ADR)(NASDAQ:SHPG) for about $54 billion; and Mr. Paulson’s fund has largely benefited from this. Shire’s stock jumped by 66.7% over the first six months of the year, and 82.3%, year-to-date, and Paulson currently owns about 2.53 million shares of the company, worth more than $650 million at the current stock price.

In a recent interview with Melissa Lee, in the context of the CNBC Institutional Investor Delivering Alpha conference, Mr. Paulson said:

“[…]We did identify Shire last year as a potential takeover target. They were a midsized, mid cap pharma company growing fairly rapidly with an Irish domicile. So that made them very attractive for several potential U.S. pharmaceutical companies. So once Valeant made the bid for Allergan, then rumors surfaced that perhaps Allergan could be interested in acquiring Shire. And then last month it was revealed that AbbVie, which was a spinoff from Abbott, so about $90 billion market cap pharma company, had made three bids in June for Shire that were rejected by Shire. But subsequently this month they made a fourth and a fifth bid (…) So that ultimate price, believe it or not, is about a 90 percent premium to where Shire traded prior – immediately prior to Valeant made its original recent bid for Allergan.”

The second largest merger/acquisition this year is AT&T Inc. (NYSE:T)’s bid for DIRECTV (NASDAQ:DTV). However, Paulson is not involved in this one. Third in line is another merger arbitrage play in which Paulson is involved: Comcast Corporation (NASDAQ:CMCSA)’s purchase of Time Warner Cable (NYSE:TWC). The first company will acquire 100% of the second’s 284.9 million shares outstanding. The value of the all-stock deal amounts to approximately $45.2 billion in equity value.

Although Time Warner Cable (NYSE:TWC)’s stock has outperformed the S&P 500 index, its growth has been somewhat modest. Still, it has contributed to the overall performance of Paulson’s fund. Over the first six months of 2014, the stock price rose 8.7%; year-to-date, 9.45%.

Time Warner Cable (NYSE:TWC) is Paulson’s fourth largest equity position. His fund owns about 5.97 million shares of the company, worth roughly $886 million at current stock prices.

More recently, Twenty-First Century Fox Inc (NASDAQ:FOX) made a $76 billion bid for Time Warner Cable (NYSE:TWC), seeking to counter the consolidation amongst U.S. TV distributors. Regarding this issue Mr. Paulson stated:

“There’s a limit to how much Fox could ultimately pay for Time Warner. So we’re not going to see a very rapid type of bidding we saw in Shire, where the premium ultimately was 90 percent above the unaffected price, or in Hillshire we had two very large bidders bidding for small asset that was both very strategic to them, where the ultimate price was also around 80 to 90 percent higher than where Hillshire traded initially. When you’re the same size, there’s a limit to how much cash you can pay, and there’s also a limit to how much stock you can provide before it becomes diluted to the acquirer’s stock and the stock goes down.”

 

Disclosure: Javier Hasse holds no position in any stocks or funds mentioned

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

The 10 Biggest Tax Havens in the World to Stash Your Money

The 15 Most Murderous Countries in the World

10 Largest Colleges in the World: Bigger Isn’t Always Better

Comedians in Cars Getting Coffee: The 6 Comedians Seinfeld Needs to Interview

Easy Money: The 10 Most Successful Investors in the World Today

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!