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 Click to see monthly returns in table format!

Lists

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

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!