rb Posted August 12, 2015 Share Posted August 12, 2015 I am thinking of selling since it is unlikely that there would be a counter offer from anyone else since management is aligned with Buffett. Thoughts? Depends on your cash position really. :) I now treat my PCP position as cash equivalent. If I needed cash a lot, I'd sell; if not, I'd wait for ~4% annualized return by Q1/2016. (Of course, there is a risk that merger does not go through and stock drops). That's precisely correct. No need to sell it if you don't need the cash and if you do then the price will be there. I don't think the merger will fail. When BRK makes an offer they close and management supports it as well so I don't see what derails this. I may actually go full arb on this one and pick up a lot more. It's not too horrible a spread and I've been studying the arb space for a long time wanting to get into it. This looks like a safe one to get my feet wet. Link to comment Share on other sites More sharing options...
benchmark Posted August 12, 2015 Share Posted August 12, 2015 I am thinking of selling since it is unlikely that there would be a counter offer from anyone else since management is aligned with Buffett. Thoughts? Depends on your cash position really. :) I now treat my PCP position as cash equivalent. If I needed cash a lot, I'd sell; if not, I'd wait for ~4% annualized return by Q1/2016. (Of course, there is a risk that merger does not go through and stock drops). That's precisely correct. No need to sell it if you don't need the cash and if you do then the price will be there. I don't think the merger will fail. When BRK makes an offer they close and management supports it as well so I don't see what derails this. I may actually go full arb on this one and pick up a lot more. It's not too horrible a spread and I've been studying the arb space for a long time wanting to get into it. This looks like a safe one to get my feet wet. rb, can you elaborate on how you intend to arb on this? short the stock? Link to comment Share on other sites More sharing options...
rb Posted August 12, 2015 Share Posted August 12, 2015 I am thinking of selling since it is unlikely that there would be a counter offer from anyone else since management is aligned with Buffett. Thoughts? Depends on your cash position really. :) I now treat my PCP position as cash equivalent. If I needed cash a lot, I'd sell; if not, I'd wait for ~4% annualized return by Q1/2016. (Of course, there is a risk that merger does not go through and stock drops). That's precisely correct. No need to sell it if you don't need the cash and if you do then the price will be there. I don't think the merger will fail. When BRK makes an offer they close and management supports it as well so I don't see what derails this. I may actually go full arb on this one and pick up a lot more. It's not too horrible a spread and I've been studying the arb space for a long time wanting to get into it. This looks like a safe one to get my feet wet. rb, can you elaborate on how you intend to arb on this? short the stock? Long the stock, short USD. Link to comment Share on other sites More sharing options...
vinod1 Posted August 12, 2015 Share Posted August 12, 2015 I am thinking of selling since it is unlikely that there would be a counter offer from anyone else since management is aligned with Buffett. Thoughts? Depends on your cash position really. :) I now treat my PCP position as cash equivalent. If I needed cash a lot, I'd sell; if not, I'd wait for ~4% annualized return by Q1/2016. (Of course, there is a risk that merger does not go through and stock drops). That is probably the right way to think about this but I just cannot get myself to view it as cash equivalent. I have a wild imagination (of risks). :) Vinod Link to comment Share on other sites More sharing options...
vinod1 Posted August 12, 2015 Share Posted August 12, 2015 I am thinking of selling since it is unlikely that there would be a counter offer from anyone else since management is aligned with Buffett. Thoughts? Depends on your cash position really. :) I now treat my PCP position as cash equivalent. If I needed cash a lot, I'd sell; if not, I'd wait for ~4% annualized return by Q1/2016. (Of course, there is a risk that merger does not go through and stock drops). That's precisely correct. No need to sell it if you don't need the cash and if you do then the price will be there. I don't think the merger will fail. When BRK makes an offer they close and management supports it as well so I don't see what derails this. I may actually go full arb on this one and pick up a lot more. It's not too horrible a spread and I've been studying the arb space for a long time wanting to get into it. This looks like a safe one to get my feet wet. This is probably a safe arb, but I would be deathly afraid of using leverage. My first arb was Constellation Energy, it worked very well, but the deal fell through. Vinod Link to comment Share on other sites More sharing options...
rb Posted August 12, 2015 Share Posted August 12, 2015 Depends on your cash position really. :) I now treat my PCP position as cash equivalent. If I needed cash a lot, I'd sell; if not, I'd wait for This is probably a safe arb, but I would be deathly afraid of using leverage. My first arb was Constellation Energy, it worked very well, but the deal fell through. Vinod Wow Constellation was a hell of a deal to start with Link to comment Share on other sites More sharing options...
mcliu Posted August 12, 2015 Share Posted August 12, 2015 I am thinking of selling since it is unlikely that there would be a counter offer from anyone else since management is aligned with Buffett. Thoughts? Depends on your cash position really. :) I now treat my PCP position as cash equivalent. If I needed cash a lot, I'd sell; if not, I'd wait for ~4% annualized return by Q1/2016. (Of course, there is a risk that merger does not go through and stock drops). That is probably the right way to think about this but I just cannot get myself to view it as cash equivalent. I have a wild imagination (of risks). :) Vinod Has WB ever walked away from any of his deals? Link to comment Share on other sites More sharing options...
rb Posted August 12, 2015 Share Posted August 12, 2015 WB didn't walk away from a deal. The closes he got was with Salomon in the 80s. When he pulls the trigger he follows through. The only risk I see on this one is the shareholders voting it down. But management is for it and a lot of the large shareholders are Buffet friendly so I think there's a very small change of that happening. Link to comment Share on other sites More sharing options...
vinod1 Posted August 13, 2015 Share Posted August 13, 2015 I am thinking of selling since it is unlikely that there would be a counter offer from anyone else since management is aligned with Buffett. Thoughts? Depends on your cash position really. :) I now treat my PCP position as cash equivalent. If I needed cash a lot, I'd sell; if not, I'd wait for ~4% annualized return by Q1/2016. (Of course, there is a risk that merger does not go through and stock drops). That is probably the right way to think about this but I just cannot get myself to view it as cash equivalent. I have a wild imagination (of risks). :) Vinod Has WB ever walked away from any of his deals? I agree with rb's assessment above. My point is that do we really want to invest in something for a 2% return over a 6 month or even longer period? Not being an arb guy, just do not know what risks I am not even aware of that can trip up the deal. Strange things happen in markets and a 2% return just does not cut it for me purely due to lack of experience in arb's. Vinod Link to comment Share on other sites More sharing options...
rb Posted August 13, 2015 Share Posted August 13, 2015 Vinod is absolutely correct. Risk arbitrage is a bit like picking up nickels in front of a bulldozer. It's also something that can generate returns uncorrelated to the market which is nice in frothy markets with not a lot of opportunities (now?). It's definitely not for beginners. I'm not pumping it for others. Just think it could work for my situation. I've been studying the space for years and it's another tool I'd like to add to my box. I have a lot of cash around and a lots of low cost credit available. The deal is fairly low risk so it seems like an ideal place to start. Other people's circumstances are likely different. Link to comment Share on other sites More sharing options...
benchmark Posted August 13, 2015 Share Posted August 13, 2015 Vinod is absolutely correct. Risk arbitrage is a bit like picking up nickels in front of a bulldozer. It's also something that can generate returns uncorrelated to the market which is nice in frothy markets with not a lot of opportunities (now?). It's definitely not for beginners. I'm not pumping it for others. Just think it could work for my situation. I've been studying the space for years and it's another tool I'd like to add to my box. I have a lot of cash around and a lots of low cost credit available. The deal is fairly low risk so it seems like an ideal place to start. Other people's circumstances are likely different. Can you sell March 16 puts and essentially get free money, assuming the deal closes before march? Link to comment Share on other sites More sharing options...
rb Posted August 13, 2015 Share Posted August 13, 2015 Vinod is absolutely correct. Risk arbitrage is a bit like picking up nickels in front of a bulldozer. It's also something that can generate returns uncorrelated to the market which is nice in frothy markets with not a lot of opportunities (now?). It's definitely not for beginners. I'm not pumping it for others. Just think it could work for my situation. I've been studying the space for years and it's another tool I'd like to add to my box. I have a lot of cash around and a lots of low cost credit available. The deal is fairly low risk so it seems like an ideal place to start. Other people's circumstances are likely different. Can you sell March 16 puts and essentially get free money, assuming the deal closes before march? I haven't looked at the options because I don't have a lot of time right now to look at the mechanics of what will happen to the options when the deal closes. The thing is that I'm pretty sure that the options are not the best way to go here. This isn't a blockbuster arb spread to begin with. The options will have a time value (attach whatever greek letter you wish) which will further eat into the spread. I have plenty of credit available and I think that this is a pretty safe deal so I'm not so interested in cutting someone else in. Link to comment Share on other sites More sharing options...
Phaceliacapital Posted August 13, 2015 Share Posted August 13, 2015 What strikes me is that the board accepted this offer.. In the past quarters PCP has repurchased shares above the USD 235 price offered, one of the average prices paid as mentioned in their 10Qs was USD 254.53, that's 10% higher than the current offer. How can you justify this to shareholders? Link to comment Share on other sites More sharing options...
NoCalledStrikes Posted August 16, 2015 Share Posted August 16, 2015 Going through a list of 13-F's this weekend and hit SQ partners (Lou Simpson)... 11 positions, one is BRK and another is PCP. I guess he'll be back down to 10 positions come March :) Link to comment Share on other sites More sharing options...
VersaillesinNY Posted August 19, 2015 Share Posted August 19, 2015 Finally, somebody woke up: https://guardianfund.nl/letter-to-pcp-board-of-directors/ "Board of Directors should act as parents to ensure rational decision-making A young boy is being seduced by a beautiful girl to sign a wrong marriage contract. We can understand this situation. However, the Board of Directors has a pure fiduciary duty to realize full value and ensure rational thinking. We understand that you feel honored to talk to and be part of the Berkshire Hathaway group of people. We also believe that this has contributed to the fact that Berkshire Hathaway has completely out-negotiated the PCC Board of Directors and its advisors.We are deeply concerned that the Board of Directors has failed to negotiate a better deal. While we admire Berkshire Hathaway that it again seems to buy a great company for a low price, we are disappointed with the role that PCC’s independent directors played and wonder who runs the show. You should be aware that Mr. Buffett knows the value of shareholder friendly management better than anyone else. The girl is offering USD 37 billion while boy is worth at least USD 40 billion. This may be love at first sight, but we see no need to rush. You seem to understand the true value of the business During the past two years, the Board of Directors approved and executed share repurchases at prices around Berkshire Hathaway’s offer price. A significant part of the buybacks seems to have occurred at an average price above USD 230. It is puzzling why you are willing to buy PCC shares at this price and at the same time sell full control of the business at the same price. In addition, in 2014 and 2015, Berkshire Hathaway bought additional shares of PCC for a price between USD 200 and USD 240. You are aware that they are intelligent investors and only buy when the intrinsic value is significantly higher than the price. This confirms the fact that the USD 235 per share offer is too low. The media seem to buy Mr. Buffett’s story that the price is high and some brokers who work for investment banks that have an important business relationship with Berkshire Hathaway seem to be satisfied with the price. The Board of Directors should have, and mostly likely has, a better understanding about the true value of the company. This is certainly not a good deal for long-term oriented PCC shareholders. Supporting this bid is not in line with the fiduciary duty of the Board of Directors. We strongly recommend that the Board will seek an appropriate premium for the acquisition or not sell at all. We believe that we know Berkshire Hathaway’s culture quite well and it is likely that they will not offer a higher price. However, we prefer to own PCC in the next ten years as a standalone company rather than being part of a massive transfer of value to Berkshire Hathaway. We will vote against the proposed deal." ------ Also, it's going to be interesting to read Sequoia's semi-annual report and find out their opinion on PCP's transaction. Link to comment Share on other sites More sharing options...
AccentricInv Posted August 19, 2015 Share Posted August 19, 2015 Also, it's going to be interesting to read Sequoia's semi-annual report and find out their opinion on PCP's transaction. Agreed. Glad someone is finally voicing this opinion publicly. Do you know when the semi-annual report from Sequoia is set to come out? Would be interesting to see their take, given their history with Berkshire. Link to comment Share on other sites More sharing options...
rb Posted August 19, 2015 Share Posted August 19, 2015 Also, it's going to be interesting to read Sequoia's semi-annual report and find out their opinion on PCP's transaction. Agreed. Glad someone is finally voicing this opinion publicly. Do you know when the semi-annual report from Sequoia is set to come out? Would be interesting to see their take, given their history with Berkshire. I don't know when we'll see their opinion, the Q1 report is not even out yet, neither is the May Investor Day report. Link to comment Share on other sites More sharing options...
AccentricInv Posted August 19, 2015 Share Posted August 19, 2015 Also, it's going to be interesting to read Sequoia's semi-annual report and find out their opinion on PCP's transaction. Agreed. Glad someone is finally voicing this opinion publicly. Do you know when the semi-annual report from Sequoia is set to come out? Would be interesting to see their take, given their history with Berkshire. I don't know when we'll see their opinion, the Q1 report is not even out yet, neither is the May Investor Day report. They said earlier this year that they'd no longer give Q1 or Q3 reports, and only issue them semi-annually. As part of this change, they're also going to include the Investor Day transcript as part of the Semi-Annual. Hence the main reason I'm waiting eagerly for it. Usually it's out by now... Link to comment Share on other sites More sharing options...
VersaillesinNY Posted August 19, 2015 Share Posted August 19, 2015 The semi-annual from Sequoia is usually published at this time of the year, so we shouldn't wait much longer. This year's investment day was good, they covered the fund main positions and in particular Valeant. Regarding Rolls Royce they asked for an activist intervention and finally got ValueAct. For PCP, Sequoia likes the business and it's management and might be surprised by Buffett's move along with the price offer. If Sequoia gives it's blessing to PCP's acquisition, it will go through. But if they respectfully disagree, there is a small chance that the company remains public. One of my heroes, Warren Buffett is belly dancing in front of PCP's management, board of directors and shareholders. He is doing his job of buying cheap, but this time the price offered to buy an outstanding business is too low. I wish that additional shareholders will vote against the proposed sale. Joining the Berkshire family is not a prerequisite to success. PCP can continue to do very well while remaining public, there is no rush to sale. Link to comment Share on other sites More sharing options...
rb Posted August 19, 2015 Share Posted August 19, 2015 Accentric, Thanks for letting me know. It makes more sense now. Versailles, thanks for the bits from the investor day. I totally agree with your view of the PCP deal. I think this deal will add a nice chunk of value to BRK. Maybe it's time to buy more BRK in the market weakness. Link to comment Share on other sites More sharing options...
bigbluffzinc Posted August 24, 2015 Share Posted August 24, 2015 Margin'd up today and made a big bet on PCP.. At these levels the annualized return is more attractive & I think interest rates are more likely to drop/remain flat at this point so it should trade at a higher premium going forward. If it's back at 231 in a week you're looking at a really great annualized return. Link to comment Share on other sites More sharing options...
cogitator99 Posted August 25, 2015 Share Posted August 25, 2015 Care to elaborate on your numbers bluff?What kind of annualized returns are we talking about? Link to comment Share on other sites More sharing options...
bigbluffzinc Posted August 25, 2015 Share Posted August 25, 2015 It it got back to 231 from where I bought it (Under 229) within a week I'd make 45% annualized. That's speculative, and I know that. But the downside was I had to hold it to maturity and make a little over 2% risk adjusted after backing out margin. I viewed the deal as a 98.5% probability of going through & 1.5% probability of losing 17%. I'm unaware of any regulatory hurdles. The further the market falls the higher probability retail investors take Buffett's buyout even if someone made noise. And I expect the probability that Buffet just backed out because he lost his mind to be 0%. Your costs of borrowing are important when you're using margin so make sure you know those or it might not have been economic. Unlike some of the investors on this forum I got caught flat footed (fully invested) and could only take advantage of arb. opportunities on margin. (Won't margin positions that can fluctuate dramatically) Link to comment Share on other sites More sharing options...
VersaillesinNY Posted September 5, 2015 Share Posted September 5, 2015 A good incentive to sell the company: Precision Castparts CEO Could Get $75.1 Million in Buffett Deal http://www.bloomberg.com/news/articles/2015-09-04/precision-castparts-ceo-could-get-75-1-million-in-buffett-deal -------- http://www.sec.gov/Archives/edgar/data/79958/000119312515313151/d54109dprem14a.htm Page 25 "[...]On July 30, 2015, the Board met to discuss how to respond to Berkshire’s proposal. A representative of Cravath reviewed the directors’ fiduciary duties and other legal matters in connection with the Board’s evaluation of the proposed transaction. Company management provided additional information relating to the Company’s multi-year forecast which had been requested by the Board following review of such forecast at the July 21 Board meeting. Among the risks discussed were the potential impact of a slowdown in China and in key markets, the potential impact of depressed oil prices on the Company’s business and future growth prospects, both in terms of equipment demand in the oil and gas industry and more broadly in the aerospace industry where high oil prices had previously driven demand for and development of more fuel-efficient aircraft engines, the duration of the current aerospace upcycle and how it compared to previous cycles and the implications of a downward shift in the cycle, and a potential slowdown in the market for industrial gas turbine engines. The opportunities discussed include the potential end of destocking by an aerospace engine customer, the potential for share gains with current customers, and the potential for an increase in demand from aerospace customers. Representatives of Credit Suisse also reviewed with the Board some additional information relating to recent transactions in the aerospace sector and provided a perspective on global macroeconomic trends. At the Board’s request, representatives of Credit Suisse reviewed other parties who might be interested in making a proposal for the Company. The representatives of Credit Suisse and Cravath provided their views on the potential commercial, regulatory approval and/or financing challenges such parties could face, which, among other things, could adversely affect the level of closing certainty as compared to the Berkshire proposal. The Board then considered the merits and risks of contacting other potential acquirors, including consideration of the lack of other potential acquirors for the Company that did not face commercial, regulatory or financial hurdles, the risk of a leak from such outreach and the impact that such a leak would have on customers and employees of the Company and the risk that Berkshire, in light of Mr. Buffett’s statements that Berkshire avoids auction processes and his track record of not participating in auctions, would withdraw its proposal, as well as the effectiveness of the Company’s ability to consider superior proposals after the announcement of a transaction with Berkshire, given the Company’s size and profile. After this discussion, the Board decided that the potential benefit of contacting other potential acquirors was outweighed by the risks and that relying on the Company’s ability to consider superior proposals after the announcement of a transaction with Berkshire would be the appropriate path to pursue in the Company’s circumstances, with a focus on minimizing the size of the termination fee that would be payable by an alternative acquiror who emerged post-signing. The Board considered the benefits and costs to shareholders of capturing and monetizing the value of the business through Berkshire’s all cash proposal, versus the risks and opportunities of continuing on a standalone basis, including those described above, and how those factors affected their perspective on the upside potential versus downside risk for the Company’s business prospects. The Board also considered the risks and opportunities associated with the Company’s regular ongoing succession planning, pursuant to which the Board has been working to identify candidates for key leadership positions, including identifying one or more candidates who could ultimately succeed Mr. Donegan. After discussion, including in executive session without management present, the Board concluded that it would be in the best interests of the Company and its shareholders to secure the benefits of the proposed transaction with Berkshire, while retaining the ability to pursue and accept a superior proposal following announcement of a transaction with Berkshire. The Board noted that obtaining a relatively low termination fee would be important. Accordingly, the Board authorized Mr. Donegan to meet with Mr. Buffett to convey that the Board had authorized him to pursue the possible acquisition of the Company by Berkshire for a purchase price of $235 per share on an expedited timetable. The Board also authorized Mr. Donegan to respond to Mr. Buffett’s request to discuss the basis on which Mr. Donegan would commit to remaining with the Company after closing, noting that Mr. Buffett had stated that this would be a precondition to Berkshire’s willingness to pursue the transaction. Later in the day on July 30, 2015, Mr. Donegan met with Mr. Buffett in Omaha, Nebraska. Mr. Donegan conveyed to Mr. Buffett the Board’s willingness to move forward with pursuing a transaction and indicated Mr. Donegan’s own willingness to stay on after the proposed transaction.[...]" Page 37 "Taking into account the results of the selected transactions analysis, Credit Suisse applied a multiple range of 11.5x to 13.5x to the Company’s LTM EBITDA as of June 28, 2015. The selected transactions analysis indicated an implied valuation reference range of $218 to $260 per share of Company common stock as compared to the proposed merger consideration of $235 per share of Company common stock in the merger pursuant to the merger agreement." Link to comment Share on other sites More sharing options...
saltybit Posted September 10, 2015 Share Posted September 10, 2015 http://www.bizjournals.com/portland/morning_call/2015/09/of-would-be-1b-fees-trips-to-omaha-and-hardball.html Link to comment Share on other sites More sharing options...
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