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Shire PLC (ADR), Allergan, Inc., Time Warner Cable Inc: John Paulson’s Top Merger Picks

John Paulson‘s Paulson & Co has been having it rough for the past two years, as far as stock picking goes. A sour bet on Whiting Petroleum Corp (NYSE:WLL), failed investments in Fannie Mae and Freddie Mac, and the failure of AbbVie Inc. (NYSE:ABBV) to acquire Shire PLC (ADR) (NASDAQ:SHPG) were the highlights of its disastrous moves in 2014. However, Paulson’s fund seems to be making a turnaround at the start of this year, which makes it worthwhile to look at his top five picks heading into 2015, according to his latest 13F filing with the SEC.

largest hedge funds in the world

John Paulson is perhaps most famous for his bets against subprime mortgages in light of which the assets of Paulson & Co peaked at $38 billion in 2011. As of January 1, 2015 the assets under management amounted to $17.8 billion due to losses and investor withdrawals in the last two years. Founded in 1994, Paulson & Co specializes in event-driven investing which involves profiting from arbitrage opportunities such as merger arbitrage, bankruptcy reorganizations and distressed credit. The company has eight funds under its management with the Paulson Advantage Fund being the flagship fund. Currently, 42.6% of the fund’s investments are in the health care sector.

After the fund increased its holding in Shire PLC (ADR) (NASDAQ:SHPG) by 169% in the third quarter in expectation of the merger deal with AbbVie Inc. (NYSE:ABBV) to materialize, it reduced the stake by 7% in the fourth quarter due to termination of the deal. The shedding of 717,696 shares of Shire in the last quarter has left the fund’s stake in the company at 8.33 million shares, valued at $1.77 billion. The position forms a significant 9.73% of the portfolio value.

Shire PLC (ADR)

Other investors who have also put their hopes in Shire for substantial returns going into 2015, including Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, and Samuel Islay of Orbimed Advisors. The funds have 1.28 million and 1.17 million shares valued at $273 million and $249 million respectively.

Allergan, Inc. (NYSE:AGN) is another one of Paulson & Co’s top picks, as it forms 6.99% of the fund’s portfolio value. Paulson added 992,800 additional shares to the position during the fourth quarter, which now stands at 6.37 million shares, valued at nearly $1.35 billion. The move also marked an 18% increase on the previously held position.

Allergan, Inc. (NYSE:AGN)

Allergan, Inc. (NYSE:AGN)’s stock is up nearly 9% year-to-date. The Botox manufacturer is set to be acquired by Actavis plc (NYSE:ACT) in light of the $66 billion takeover bid that fended off Bill Ackman of Pershing Square and Valeant Pharmaceuticals Intl Inc (NYSE:VRX), who had made their own attempt to takeover the company.

In its fourth quarter earnings report Allergan beat revenue estimates by $10 million, by posting a top line figure of $1.91 billion. Earnings per share (EPS) also beat the estimates by $0.34 and stood at $2.17.

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