As a kid I enjoyed a good riddle every now and again but as the years went by thought I’d outgrown them to a large degree. Until now. One of the companies in my portfolio announced a dividend. In reviewing the announcement (specifically the SEC 6-K filing), I noticed the dividend amounted to an increase of 13.16%. Not shabby – in fact it exceeds the average of my portfolio (12.08% current). So imagine my surprise to find the amount to be credited resulted in a 15.23% reduction! Hmm … kind of blows away the increase, doesn’t it? Of course I had to investigate – it appears like that’s what I seem to do.
Inside this feeble brain resides a significant amount of skepticism. Perhaps from age or maybe the result of life’s encounters – the result is there is a difficulty in accepting anything at face value. Especially when it’s a moving target – otherwise known as a changing story line. Another case in point is the curious case of ZTE (ZTCOY) which exploded into our consciousness in major form this past week due – in no small part – to tweets from the president.
To set the stage, ZTE agreed to enter a guilty plea and pay a fine to settle a 2017 case that they violated export sanctions by shipping products with US components to Iran. On April 16, 2018 the Commerce Department enacted a ban on American companies conducting business with ZTE for seven years as a result of ZTE allegedly breaching said settlement. In addition, the US military had previously raised concerns of potential espionage by ZTE’s equipment on or near military bases.
I was sorely disappointed when the Loyal3 investing platform was absorbed into FolioFirst last year. Sure it had disadvantages and limitations (limited number of stocks, only batch trade) but as in life, you get what you pay for. A transaction fee of $0 for a buy, $0 for a sale was nothing to sneeze at. With the monthly service fee FolioFirst wanted I figured I’d be ahead in the game by just transferring my shares to my regular broker and paying their $4.95 fee as needed (which isn’t monthly purchases with this group of stocks). I did look at other alternatives (RobinHood, Stockpile, WiseBanyan) but each had their own drawbacks to my way of thinking.
This morning, the long-rumored merger between Takeda Pharmaceutical Company Ltd (TPKYY) and Shire plc (SHPG) has been approved by both companies boards for the consideration of $30.33 in cash and either .839 shares stock or 1.679 ADS for each Shire share. (Takeda’s current NYSE listing is at a 2:1 ratio, hence the differential). Shire shareholders will also be entitled to dividends paid or declared through the merger effective date.
The combination is expected to complete in the first half of 2019 and will result (I believe) in the eighth largest pharma company. Takeda expects to maintain both its’ dividend policy and investment grade rating.
My investment came about via Baxter’s spin of Baxalta which was subsequently acquired by Shire. The overall investment is currently a little under water but the cash portion of this deal should mitigate this to a degree. Apparently a major concern is that some large holders don’t care to hold Japanese paper. Although Japan’s monetary policy (and resulting exchange rate) is a potential issue, my belief is that the combined company will have enough of a worldwide footprint to offset this.
Therefore I favor this deal and expect to increase my Shire holdings enough to avoid a weird fractional allocation of shares based on the merger terms.
The month was relatively crazy with geopolitics driving the highs and domestic lunacy driving the lows. In between were relatively strong earnings and interest rates inching higher driving the question of the bull market sustainability. Personally, I’m not overly concerned yet but Marco Rubio‘s “implication that Republicans have found no good answer to the problems Mr Trump described is irrefutable.” may be an omen of things to come. Meanwhile, I took advantage of some dips and stayed the course. April saw the S&P rise 0.27% and my portfolio outperformed the index by registering a rise of 0.65%! YTD I still lag the S&P by 0.43%.