In our last premium post we discussed a new feature where we are gathering 13F data from the SEC for a group of over 30 funds and are displaying how many of these funds hold certain positions in the Merger Arbitrage Tool (MAT). The deadline to file the 13F forms for Q2 2019 was August 14 and we captured the data for the last quarter shortly thereafter. It was interesting to see that three funds that had a position in Sprint (S) in Q1 2019 decided to exit their positions in Q2 2019, while a new fund decided to start a new position in Sprint.
Paul Tudor Jones’ Tudor Investment started a tiny position worth just $198,000 in Sprint. Considering the value of the positions they reported in their latest 13F was $3.51 billion and that they had over 1,000 positions, this Sprint position seems inconsequential unless they were just getting started with building a position at the end of the last quarter. We are now working on some enhancements to this feature and plan to release these enhancements in the coming weeks. But I digress. The purpose of this post was to discuss an interesting spinoff situation.
Spinoffs helped Joel Greenblatt generate double digit returns over a period of a decade and we wrote the following about him last year,
Joel Greenblatt, the founder of the hedge fund Gotham Capital and adjunct professor at Columbia Business School, managed to build a stellar track record from 1985 to 1994 with average returns of 50% per year by focusing on special situations and event-driven strategies. He published You Can Be a Stock Market Genius in 1997 and made the case for tracking spin-offs and especially paying attention to insiders of spin-offs.
Greenblatt’s experience with merger arbitrage was however not pleasant as a number of deals he invested in failed. Over the last year, the tables have turned with merger arbitrage providing better prospects and spinoffs not generating the kind of returns one would expect. Even spinoffs and Reverse Morris Trust transactions with insider buying have seen their stocks drop dramatically. A couple of examples of this include the spinoff of Cars.com (CARS) from the company formerly known as Gannett, Co. (TGNA) and Entercom Communications (ETM) merging with CBS Radio in a tax-free Reverse Morris Trust transaction.