Friday, October 3, 2008

MANDA Fund Updates

The tightening of global credit has pretty much killed any new M&A (mergers and acquisition activity) and has significantly raised the level of uncertainty regarding deals already cooking. The hemorrhaging of investor confidence has bled into the M&A arena, as evidenced by the dramatic sell-off in the market combined with the VIX at unprecedented levels. In short, very few take-over candidates are looking safe, and this includes some of the holdings in my MANDA portfolio.

Here's a review of current positions.

Photon Dynamics (PHTN): Well! After all of the speculation surrounding the sudden drop in the price of the stock on September 10th, it appears that whatever accounted for it had nothing to do with the fundamentals of the deal as it closed last Thursday just two days after receiving regulatory approval from the government. The acquistion was priced at $15.60/share in cash resulting in a nice 8% return on the trade. Glad I hung in there! But alas, I can't say the same for...

Bluegreen Corp. (BXG): I did not follow my own advice the first time when the stock dropped below $9 a couple of weeks ago and watched in misery as it slid to its pre-takeover level near $6. I finally threw in the towel last Friday when the price fell below its $6 support level and exited the position at $5.62 for a 53% loss. Although this was an ugly loss, I'm glad I did pull the trigger on Friday as the stock has shed another 20% today. Ugh. This may indeed be a dead deal...or a chance for the acquiring company to offer significantly less than the initial $15/share price. I'll be interested to see what happens as the November 15th due diligence deadline approaches.

Rohm & Haas (ROH): The stock has been doing fine until today when it gapped down along with the rest of the market. There's no new news and as far as I know, the deal financing is not in jeopardy. The stock reached an intra-day low of $62.43 but has staged a strong comeback in just the last few minutes. It's now trading at $65.25. Heaven forbid the stock drops any more and I'll be forced to sell it if it trades below $60 support. For now, I'm hanging onto it and not adding to this (nor any) position. For the bold and the brave out there, should you pick some up at this level, you could realize a return of almost 20% if the deal goes through.

And therein lies the crux: How do you know if these deals are in jeopardy? It's not easy to tell, based on public information. Sure, you can call the companies' investor relations departments to inquire about deal status, but good luck getting to speak to a human being. And if you're lucky enough to catch one, how to you know you'll be getting a truthful answer? I don't, which is why I'm holding off on making any new acquisitions until there's more credit liquidity, not that I have any choice in the matter since there's nothing out there worth buying.

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