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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,