Big fish, big pond

July 1, 2015 09:00 AM

A lucrative yet little-known source of market insight is public 13D/G SEC disclosures of activist investors. Activist managers represent some of the most skilled and public hedge fund managers. They are often in the news taking their battles with corporate boards to the public. Pershing Square Capital Management, run by Bill Ackman, has had many public battles including the recent one with large California-based pharmaceutical company Allergan (AGN). 

Pershing Square disclosed its initial interest in Allergan on April 11, 2014, in an attempt to force a sale of the company to Valeant Pharmaceuticals. Although Pershing Square failed in its attempt to have Valeant purchase the company, it did manage to instigate a sale to Actavis Plc in November 2014 for $66 billion--netting the hedge fund an estimated profit of $2.6 billion for its 9.7% ownership stake. Investors could have bought in alongside Ackman at $120 a share, just after the initial disclosure, and watch the stock close in March 2015 at $240 per share; a 100% profit in just under a year. 

Another example is the 30% return that was possible by following the activist investor Marcato Capital Management’s position in the Minnesota-based fitness corporation Life Time Fitness (LTM). Marcato first disclosed its 7.2% ownership position in Life Time on May 21, 2014. In its initial fillings Marcato described the stock as undervalued and said it would consider operational and management initiatives to increase shareholder value. Among those options: Improving capital structure and capital allocation, pursuing strategic transactions and shifting general corporate strategies.

On Aug. 25, Life Time said it had begun to explore a potential conversion of its real estate assets into a Real Estate Investment Trust (“REIT”). In a Sept. 5 follow-up letter Marcato commended Life Time’s CEO on the announcement and outlined the benefits of the move. Included in the letter was Marcato’s analysis that Life Time shares could reach $70 upon the separation of its real estate assets.  

On March 18, 2015, Marcato disclosed in a 13D filing that it had exited its Life Time position two days earlier, after the stock achieved the $70 value that Marcato had predicted. 

The average investor looking to profit off of the deal could have bought in after the initial disclosure and sold their shares just after the liquidation was disclosed, at the closing price of $70.76, netting a minimum 30.3% return in 10 months.

WhaleWisdom.com provides everyday investors like you with real-time e-mail alerts and other tools to keep you updated on transactions like these. Identifying these transactions and leveraging WhaleWisdom’s accompanying data and analysis can bring returns comparable to those of sophisticated investment funds like Marcato and Pershing Square.

Note: Schedule 13D/G forms must be filed with the SEC when a person or group acquires more than 5% of any class of a company’s shares. Generally, this information must be disclosed within 10 days of the transaction.

About the Author

Brent Plunkett is the co-owner of WhaleWisdom.com and CEO of Charter Wealth Management.  WhaleWisdom helps investors research and replicate the portfolios of top hedge funds through their publicly available SEC disclosures providing access and tools to invest like a Wall Street money manager at a Main Street price. @whalewisdom