Insider Weekends: A Week of Repeat Purchases With Ecolab and DISH Network

We saw a week of repeat purchases last week with Bill Gates adding more to his Ecolab (ECL) stake to the tune of $10 million, Co-Founder and Director James DeFranco picking up another $9 million worth of DISH Networks (DISH) and CEO CEO Ernest S. Rady acquiring another $1.51 million worth of the diversified REIT American Assets Trust (AAT). We have written about each of their prior purchase here, here and here in the past.

Looking at the new purchases from last week, the size of the insider purchase of online tutoring company Nerdy (NRDY) stood out when its Founder/CEO Charles Cohn purchased 5 million shares worth $17.5 million. Mr. Cohn founded Nerdy in 2007 when he was a student at Washington University in St. Louis. During his early days of incubating Nerdy he also worked as an investment analyst at Wachovia (acquired by Wells Fargo during the Great Recession) and for a venture capital firm.

Nerdy went public through a SPAC combination in September 2021 and as is usually the case with SPAC mergers, went on to lose more than 68% of its value post-closing. Following this purchase, Mr. Cohn owns almost a third of the company. Given the purchase price ($3.50) and the fact that VC firm Light Street Capital sold the exact same number of shares at the same price on the same day, indicates that the purchase was probably privately negotiated and this was not an open market purchase. While the company is growing revenue rapidly, it continues to remain unprofitable and free cash flow is negative even after adjusting for egregiously high stock-based compensation. Nerdy is probably a 2024 story considering the company plans to achieve “adjusted” EBITDA profitability by the end of 2023.

The more interesting purchase was Director Gregory Bailey acquiring 38,000 shares of Biohaven Pharmaceutical (BHVN) for $148.04 per share. The reason this purchase stands out is because Biohaven is currently in the process of getting acquired by Pfizer (PFE) in an all cash deal valued at $148.50 that is expected to close by early next year. Mr. Bailey was not buying Biohaven for the $0.46 arbitrage spread on the deal. The deal includes a kicker where Biohaven shareholders will also receive 0.5 of a share of New Biohaven, a company that will retain Biohaven’s “non-CGRP development stage pipeline” compound.

The value of this spinoff remains uncertain but at his purchase price, the spinoff was essentially a free lottery ticket. The stock now trades a little over $148.50 per share. We wrote about this deal and the spinoff in more detail in our May 2022 min-month update for IA Premium and IA Plus subscribers here. The stock was trading at $141 back then, providing an attractive return on the spread and additional optionality from the spinoff. I wrote the following about the spinoff and the deal in that mid-month update,

Many parent companies load their spin-offs with a large amount of debt but in this case, the new company will be seeded with $275 million in cash net of any securities or cash already held by the spin-off. The deal gets even sweeter with the spin-off entitled to tiered royalty payments related to the sales of certain approved products like the leading migraine drug Nurtec ODT (rimegepant) and products like zavegepant that are in the process of getting FDA approval.

Despite a low probability of the new SpinCo benefiting from those lofty sales target anytime soon, it adds optionality to the SpinCo beyond the $275 million in cash it would receive from Pfizer. SpinCo will also receive certain other assets and liabilities from Biohaven related to Biohaven’s pipeline of products. Pfizer wants to retain all the migraine related drugs (both approved and in the pipeline) and spin-off the rest into the new SpinCo. For every two shares of Biohaven, shareholders will receive one share of the SpinCo. As of May 6, 2022, Biohaven had 71.043 million shares outstanding according to their latest 10-Q filing. You can find the Separation and Distribution agreement here. It is very difficult to assign a value to the SpinCo shares given the information provided in the separation agreement but we can treat it as an option or CVR beyond the returns provided by the closing of the merger.

Instead of a go-shop period, this deal includes a no-shop provision preventing BHVN from soliciting other acquisition offers or engaging in negotiations or discussions with other third parties, with some exceptions. In the event the company does end up accepting a superior proposal from some other party or BHVN’s board changes their recommendation to shareholders about the Pfizer deal, BHVN would be liable to pay Pfizer a $450 million termination fee.

Pfizer has been using its COVID-19 vaccine related cash bonanza to go on a buying spree and we benefited from the arbitrage spreads on both the Trillium Therapeutics and Arena Pharmaceuticals deals, which we discussed in the September 2021 and January 2022 special situations newsletters. These deals along with other pharma deals have not run into regulatory issues because it makes sense for young pharma or biotech companies to partner with big pharma when their products are close to getting FDA approval or are ready to benefit from the distribution scale of big pharma. Most of these deals have closed faster than initially anticipated and often in less than 90 days. In this case, on account of the publicly traded new SpinCo, the deal could take a little longer but I would be surprised if it takes until the end of Q1 2023 for this deal to close. A faster close would improve the annualized returns on this merger arbitrage situation. I was discussing this deal with a subscriber

Welcome to edition 634 of Insider Weekends. Insider buying declined last week with insiders purchasing $161.93 million of stock compared to $324.01 million in the week prior. Selling also decreased to $841.55 million compared to $1.64 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 5.19. In other words, insiders sold more than 5 times as much stock as they purchased. The Sell/Buy ratio this week was unfavorable compared to the prior week when the ratio stood at 5.06.

Notable Insider Buys:

1. Nerdy, Inc. (NRDY): $3.52

Chief Executive Officer Charles K. Cohn acquired 5,000,000 shares of this online tutoring and learning products provider, paying $3.50 per share for a total amount of $17.5 million. These shares were purchased indirectly by Rarefied Air Capital LLC.

You can view the list of recent insider transactions for Nerdy, Inc. here.

2. Ecolab Inc. (ECL): $165.26

10% Owner William H. Gates III acquired 58,667 shares of this global provider of water, hygiene and energy technologies and services to the food, energy, healthcare, industrial and hospitality markets, paying $171.37 per share for a total amount of $10.05 million. These shares were purchased indirectly by by Cascade Investment, L.L.C.

You can view the list of recent insider transactions for Ecolab Inc. here.

3. DISH Network Corporation (DISH): $17.61

Director James DeFranco acquired 499,700 shares of DISH Network, paying $18.03 per share for a total amount of $9.01 million. These shares were purchased indirectly by a limited liability corporation.

You can view the list of recent insider transactions for DISH Network Corporation here.

4. Biohaven Pharmaceutical Holding Company Ltd. (BHVN): $148.75

Director Gregory Bailey acquired 38,000 shares of this biotech company, paying $148.04 per share for a total amount of $5.63 million. Mr. Bailey increased his stake by 1.49% to 2,583,658 shares with this purchase.

You can view the list of recent insider transactions for Biohaven Pharmaceutical Holding Company Ltd. here.

5. Sarepta Therapeutics, Inc. (SRPT): $111.89

Director Michael Andrew Chambers acquired 46,170 shares of this biotech company, paying $108.28 per share for a total amount of $4.99 million. Mr. Chambers increased his stake by 940.71% to 51,078 shares with this purchase.

You can view the list of recent insider transactions for Sarepta Therapeutics, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Walmart Inc. (WMT): $131.6

Shares of Walmart were sold by 2 insiders:

• Director Robson S. Walton sold 670,189 shares for $135.43, generating $90.76 million from the sale.
• President and CEO Douglas C. McMillon sold 9,708 shares for $135.63, generating $1.32 million from the sale.

You can view the list of recent insider transactions for Walmart Inc. here.

2. Rollins, Inc. (ROL): $34.48

Chairman and CEO Gary W. Rollins sold 1,630,166 shares of this pest and wildlife control services provider for $36.68, generating $59.79 million from the sale. These shares were sold indirectly by LOR, Inc.

You can view the list of recent insider transactions for Rollins, Inc. here.

3. Paylocity Holding Corporation (PCTY): $245.77

Shares of this software application company were sold by 2 insiders:

• Director Steven I. Sarowitz sold 225,000 shares for $252.28, generating $56.76 million from the sale.
• CFO and Treasurer Ryan Glenn sold 750 shares for $248.49, generating $186,368 from the sale.

You can view the list of recent insider transactions for Paylocity Holding Corporation here.

4. CF Industries Holdings, Inc. (CF): $118.35

Shares of this manufacturer of hydrogen and nitrogen products were sold by 3 insiders:

• President & CEO Anthony W. Will sold 102,520 shares for $110.16, generating $11.29 million from the sale.
• Sr. VP and CFO Christopher D. Bohn sold 40,000 shares for $110.84, generating $4.43 million from the sale.
• Sr.VP, Sales, Mkt Dev & Supp Chn Bert A. Frost sold 20,964 shares for $112.01, generating $2.35 million from the sale.

You can view the list of recent insider transactions for CF Industries Holdings, Inc. here.

5. MultiPlan Corporation (MPLN): $3.63

Director Mark Tabak sold 4,500,000 shares of this data analytics provider for $3.80, generating $17.1 million from the sale.

You can view the list of recent insider transactions for MultiPlan Corporation here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer: I hold long positions in Biohaven Pharmaceutical (BHVN) and Pfizer (PFE). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.