According to fresh data from Hedge Fund Research, hedge fund clients pulled out $15 billion from the hedge fund industry in the first quarter of 2016, which represents the biggest outflow since the second quarter of 2009. The amount of capital invested in the hedge fund industry declined to $2.86 trillion in the first three months of this year, after suffering two straight quarters of net outflows. Macro-focused hedge funds and event-driven hedge funds experienced the largest redemptions during the quarter. While hedge funds do not necessarily benefit from client redemptions, the massive outflow of capital from the industry may eventually lead to improved performance through better capital allocation. With that in mind, the following article will discuss four filings submitted with the SEC by several highly-successful activist hedge funds tracked by Insider Monkey.
At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
Billionaire Activist Paul Singer Successfully Orchestrated Merger between Polycom and Mitel Networks
As revealed in a freshly-amended 13D filing, Paul Singer’s Elliott Associates L.P. and its affiliates collectively own 8.85 million shares of Polycom Inc. (NASDAQ:PLCM), which account for 6.6% of the company’s outstanding shares. Since Elliott’s position in Polycom has not been adjusted since the initial 13D on the company was filed in early October, the 13D filing was amended to include that Elliott entered into a voting agreement with both Polycom and Mitel Networks Corporation (NASDAQ:MITL) under which the activist firm will vote its shares in favor of the merger between the companies. Earlier this month, Mitel Networks announced that it had agreed to acquire Polycom in a cash-and-stock deal valued at $1.96 billion on the day of the announcement. Under the terms of the deal, Polycom shareholders will receive $3.12 in cash and 1.32 Mitel common shares for each share of Polycom.
According to a separate 13D filing, Mr. Singer’s Elliott and its affiliates have combined economic exposure in Mitel Networks Corporation (NASDAQ:MITL) of approximately 10.7%. This includes 11.77 million shares of common stock, which constitute 9.7% of the company’s total number of outstanding shares, as well as additional economic exposure of 1% in the form of cash settled swaps with respect to 1.17 million shares. In early October, billionaire activist investor Paul Singer disclosed a 6.6% stake in Polycom and a 9.6% stake in Mitel, urging the two companies to explore a combination that was said to generate significant equity value for shareholders.
Earlier this week, Elliott also issued a statement in connection with the Polycom-Mitel merger, saying that they “are highly supportive of the transaction” and that it can create significant equity value for the shareholders of both Polycom and Mitel “as the new company is expected to realize approximately $160 million of synergies”. Importantly, the activist shareholder anticipates the soon-to-be combined company to “rapidly de-lever while generating significant cash flow, positioning the combined company for additional M&A after Polycom is successfully integrated”. What’s more, Elliott also expressed their belief that the shares of Mitel Networks could gain 35%-to-60% in the next twelve months based on an EBITDA multiple range of 6-7x. George Soros’ Soros Fund management owned 8.85 million shares of Polycom Inc. (NASDAQ:PLCM) at the end of 2015, while Jim Simons’ Renaissance Technologies had 1.24 million shares of Mitel Networks Corporation (NASDAQ:MITL) in its equity portfolio on December 31.
Let’s head to the next two pages of this article, where we digest two separate SEC filings recently submitted by several hedge funds monitored by our team.
Driehaus Capital Seeks Higher Price for Carmike Cinemas
According to a newly-amended 13D filing, Richard Driehaus’ Driehaus Capital Management LLC currently owns 2.43 million shares of Carmike Cinemas Inc. (NASDAQ:CKEC), which represent 9.90% of the company’s outstanding common stock. This represents an increase from the stake of 1.97 million shares disclosed in the initial 13D filing on the company, submitted with the SEC at the end of March. Both the amended and original filing reveal that Driehaus Capital acquired the shares of the U.S. motion picture exhibitor because they were undervalued. Precisely, Mr. Driehaus’ investment firm believes that shareholder value “can be unlocked by exercising their voting rights with respect” to the pending merger transaction with the second-largest U.S. theater chain AMC Entertainment Holdings Inc. (NYSE:AMC), which is controlled by Chinese private conglomerate Dalian Wanda Group. In early March, AMC agreed to acquire Carmike Cinemas for $30.00 per share in cash, but Driehaus Capital believes that this offer “meaningfully undervalues” the fourth-largest U.S. exhibitor. Nonetheless, Mr. Driehaus and his team acknowledge that the possible merger between the two companies represents “a unique opportunity for AMC to gain substantial scale”, but a more realistic purchase offer would be in the range of $43.50 to $47.25 per share. Mittleman Brothers LLC, which has an 8.4% stake in Carmike Cinemas Inc. (NASDAQ:CKEC), has also voiced its disagreement with the $30-offer, saying that Carmike is worth a minimum of $35 per share to $40 per share “before the huge synergies of a merger with AMC”. There were 22 hedge funds tracked by Insider Monkey with stakes in Carmike Cinemas, amassing nearly 18% of the company’s shares. Charles Paquelet’s Skylands Capital owns 44,150 shares of Carmike Cinemas Inc. (NASDAQ:CKEC) as of March 31.
Harvest Capital’s Ongoing Proxy Fight with Green Dot
Earlier this week, Joseph A. Jolson’s Harvest Capital Strategies LLC filed with the SEC its definitive proxy materials in connection with Green Dot Corporation (NYSE:GDOT)’s upcoming annual meeting of shareholders, urging shareholders to vote for the election of its three nominees, including Saturnino Fanlo, George W. Gresham, and Philip B. Livingston, to the Board. According to fresh filings, Harvest Capital owns 4.72 million shares of the provider of reloadable prepaid debit cards, which make up 9.4% of the company’s outstanding shares. Similarly, Green Dot also sent a letter to shareholders urging them to vote for its slate of three director nominees that includes the company’s current Chief Executive Officer, Steven W. Streit. The activist shareholder asserts that “Although the election of our nominees to the Board at the Annual Meeting would not remove Mr. Streit as CEO and may not results in his termination as CEO, given that our nominees would only constitute a minority of the Board, we believe it would demonstrate a vote of no confidence in Mr. Streit’s ability to lead the Company”. Last week, Green Dot Corporation (NYSE:GDOT) announced the appointment of three new independent directors to its Board, as well as the increase of the size of the Board to ten seats from eight seats (one non-independent director stepped down). As a result, San Francisco-based Harvest Capital recently claimed that the company’s decision to increase the Board size will diminish the influence of Harvest-nominated directors, assuming they will be elected by shareholders (read more details). Shares of Green Dot are 32% in the green year-to-date. Ken Griffin’s Citadel Advisors LLC owned 1.46 million shares of Green Dot Corporation (NYSE:GDOT) at the end of December.