Did Hedge Funds Anticipate These M&A Deals?

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Antitrust regulations, tax rules and political uncertainty marred the Merger & Acquisitions (M&A) activity in the second quarter of 2016. According to the data compiled by Thomson Reuters, deals worth $1.6 trillion were announced through June, 30 since the start of the year, showing a 19% decline as compared to the first half of 2015. In the second quarter, announced deals were worth $839 billion, down 32.5%. According to Dealogic, $400 billion worth of corporate mergers has been withdrawn in the US since January. In April, Pfizer called off its $160 billion agreement to acquire Allergan, following intense resistance from the regulatory authorities over tax inversion concerns. Earlier that month, the U.S. Treasury had introduced new rules to curb tax inversions. This event resulted in a domino effect, tarnishing several notable M&A plans. Retailers Staples and Office Depot called off their $6.3 billion deal; Halliburton and Baker Hughes also cancelled their $35 billion merger.  Koninklijke Philips NV also cancelled its plan of $2.8 billion sale of its lightning-components unit to China’s GO Scale Capital after the Committee on Foreign Investment in the United States objected. The Brexit vote made the matters worse. A survey by Intralinks published last month showed that 80% percent of deal makers did not believe Britain would leave the E.U. Companies are still in a process to find out how exactly Brexit would affect the deals. Among the important companies making headlines following M&A activity during the second quarter are Monsanto Company (NYSE:MON), Abbott Laboratories (NYSE:ABT), St. Jude Medical, Inc. (NYSE:STJ), Microsoft Corporation (NASDAQ:MSFT) and LinkedIn Corp (NYSE:LNKD). Let’s find out the details of this activity and see how hedge funds positioned themselves in these companies.

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Bayer AG’s Acquisition of Monsanto Company

Agrichemical and biotechnology company Monsanto Company (NYSE:MON) is in talks with the Germany’s Bayer for a merger.  Last week, Bayer sweetened its offer to $125 a share from the previous $122 per share. Shares of Monsanto surged after the news, but the company rejected the second offer as well, which prompt some to suggest that Bayer may push for an unsolicited bid. Several reports have also pointed out Monsanto might be in talks with another German chemicals giant, BASF SE. In June, Barron’s said in a report that investors are not happy with Monsanto-Bayer deal and farmers are likely to question the combination. Deutsche Bank estimates that a failure of the deal could result in Monsanto’s stock plummeting by about $100. During the first quarter, the number of investors from our database that were long Monsanto Company (NYSE:MON) surged to 51 from 38. Among them, Larry Robbins‘ Glenview Capital owned more than 11.00 million shares of the company.

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Abbott Laboratories’s Acquisition of St. Jude Medical

M&A deal volume in the healthcare industry grew in the first and second quarters of 2016. A notable of healthcare sector deals is the acquisition of St. Jude Medical  by Abbott Laboratories (NYSE:ABT).  Abbott Laboratories said in April that it was going to acquire heart-device maker St. Jude Medical, Inc. (NYSE:STJ) for $25 billion. Medical devices makers are being acquired by healthcare companies as technology products become central to the swiftly evolving treatments. St. Jude Medical will add $0.21 to Abbott’s adjusted earnings per share in 2017. Between January and March, the number of funds tracked by Insider Monkey that held shares of St. Jude Medical slid by five, to 36. In addition, 42 funds held stakes in Abbott Laboratories (NYSE:ABT).

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On the next page, we will take a look at the M&A activity around Microsoft and LinkedIn.

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