Small Bank Frenzy

After a pause in action due to the post election run-up in valuations, it appears the action is opening up once again in merger activity.  One of the positions I initiated in October is the latest target.  I entered Stonegate Bank (SGBK) due to their US government sanctioned Cuban interaction as well as being a potential takeover target.  In fact, Vivianne (Well Rounded Investor) and I had this very discussion.  Low and behold, Home Bankshares (HOMB) saw the benefits that I did.

The terms of the deal are not purely defined probably due to potential market volatility.  It will be a cash and stock deal with the ratio defined nearer to close.  Per the 8-K, the combined stock/cash value is $49.00 per SGBK share.  Considering my entry point was $34.17, a roughly 43% gain over 5 months is not too shabby.  The only disappointment is the $49 total is a less than 6% current premium which would indicate HOMB believes a significant part of SGBK’s rise in share price was due to emotion (Trump rally) rather than fundamentals.

My intention is to take the money, retain the shares and perhaps buy a little HOMB on weakness as I believe my initial Cuba premise still stands.  Besides, HOMB being a $13B bank post acquisition places them in the arena of being a potential acquisition target themselves.

Must Be Merger Monday

Just when I thought M&A activity was winding down for the year, Janus Capital announced today they were merging with Henderson Group plc.  The new entity will be called Janus Henderson Global Investors with Headquarters in London.  The combined company will apply for a primary listing in New York, keeping Henderson’s Australian listing (HGG.AX) but delisting in London.  Terms of the deal will provide Janus shareholders with 4.719 shares of the new company for each share held and is expected to complete 2Q 2017.

So it appears the rumored consolidation in the money manager space has begun.  For those unfamiliar, Janus is where Bill Gross set up shop following his departure from Pimco.

I like the synergies – the only issue I have being a twice per year rather than quarterly dividend.  But I was looking to enter a UK stock (with sterling being weak) so it appears one is landing squarely into my portfolio.

 

Sep 2016 Update

Last month saw the commencement of the Congressional take on the ‘bully pulpit’ with first Heather Bresch (Mylan (MYL)/EpiPen) then John Stumpf (WFC) called on the carpet.  One would think Heather would have been smart enough to avoid taking the same path blazed so brilliantly by Martin Shkreli (Turing/Valeant (VRX) fame).  Her show was overshadowed by the even greedier Wells Fargo with John either portrayed as ‘asleep at the wheel’ or a criminal mastermind.  Wouldn’t life be interesting if Congress actually did anything other than use hearings to frame media sound bites?  The S&P was basically flat for the month ending down 0.12%.  My portfolio was basically flat as well, ending up 0.04%.  This increases my lead for the year to 11.88% with one quarter left to go.

Headlines impacting my portfolio:

  • 9/1 – CHD 2:1 stock split
  • 9/2 – Ireland to appeal EU anti-AAPL tax ruling
  • 9/6 – ENB to acquire SE
  • 9/12 – AGU/POT reach merger agreement
  • 9/19 – REITs officially become their own sector
  • 9/26 – YUM spin set at 1:1 YUMC for 10/31
  • 9/29 – Supreme Court agrees to hear credit card surcharge case
  •           – PNY/DUK merger approved, closing set for 10/3

Blog Updates:

I’m a little behind this month but the portfolio data has been compiled and will be posted in the next couple of days with the goals update later in the week.  The Unabridged portfolio should be next week as per normal.

Portfolio Updates:

  • FMBH replaced FCLF due to merger
  • Added to TOWN – this ‘makes whole’ this holding following my sale of MNRK prior to the merger.  (didn’t want to hold TOWN across two accounts)
  • Added to AROW prior to ex-div for the stock dividend (shares added Sept 29)
  • Added to SBUX

All were funded by dividends with no ‘new cash’ deployed.  New cash was deployed for the  annual funding of the trust I manage (skip generation).  The trust is excluded from my DGI portfolio and WFC is this year’s addition.  This is only the second time I’ve duplicated one of my holdings – the other being DIS.  The other trust holdings are GIS, HSY, PG, WMT, WGL, UNP, KHC and TXN.

Dividends:

  • September delivered an increase of 24.7% over September 2015.  This was due about evenly between dividend increases (Y/Y) and late 2015 funding.
  • September was up 4.4% from the prior quarter.
  • Announced dividend increases currently average 12.91% with 63.09% of my portfolio having at least one raise so far this year.
  • Through September, dividends received were equal to 95.7% of all 2015 dividends, keeping me on pace to exceed last year’s total -now estimated to be October 4th (as compared to 2015 being Sept. 9th).

With the cash from PNY/DUK, I’ll be looking to redeploy primarily into existing Jan/Apr/Jul/Oct payers within my portfolio with no new positions expected.  Losing PNY and the expected loss of LSBG (another merger) will leave about a 5.07% hole in my January dividend receipts unless I act now.

Spinoffs:

The YUM spin has been set for Oct 31st with YUMC to begin trading Nov 1st.  I don’t think the XRX spin date and ratio have been set.

 

 

Agrium Merger

agu   pot

On September 12th, Agrium announced they were merging with Potash Corporation of Saskatchewan Inc. (POT).  Although billed as a merger of equals, the terms appear to favor Agrium shareholders (of which I am one).  Terms of the all stock transaction are POT shareowners get .4 shares of newco (52%) with AGU shareowners getting 2.23 shares of newco (48%).  Closing is expected mid-2017.

I guess my main question is whether this deal will be the stabilizing factor Potash needs (following dividend cuts) or if Agrium follows POT’s lead.  The answer, I’m sure, lies in commodity pricing.  I’ll ride along and perhaps add a few more shares while the regulators have their say.  I’ll add a link to Morningstar’s analysis.

Another Merger – LSBG

Yesterday brought the announcement that Lake Sunapee Bank Group (LSBG) agreed to be acquired by Bar Harbor Bankshares (BHB).  This will be an all stock transaction valued at approximately $17.00 per LSBG share and represents a nearly 20% premium t0 yesterday’s close.  The terms:

  • .497 shares of BHB for each LSBG share.

I’ve had my eye on BHB for a little while but never pulled the trigger.  Perhaps the premium received will allay any nagging issues.

bhb

Lake Sunapee, being one of my poster children for my bank merger thesis, occupied a Satellite slot (1.5% dividends generated) in my portfolio.  Since the dividend date will change with the merger, I’ve decided to elevate Toronto-Dominion Bank to replace LSBG since they have the same payment date.

 

First Cloverleaf Merger

fclf

This evening we received notice that First Cloverleaf (FCLF) was being acquired by:

fmbf

This transaction will be performed as either (my choice):

  • A stock transaction exchanging .495 shares of FMBH for each FCLF share, or
  • $12.87 cash for each FCLF share

The deal is subject to proration, with FMBH wanting to pay 25% in cash.  This translates into roughly a 24.4% gain in less than two years.  My guess is I’ll take the shares to roll the capital gains into the future, but I’ll base the decision on the spread between the two a few months down the road.

The good news, besides the premium, is FMBH pays a slightly higher dividend.  The downside is the dividend is semi-annual rather than quarterly.

Getting the Year Started

The worst kept secret is now official, Baxalta (BXLT) is being acquired by Shire (SHPG) in a stock and cash transaction valued (10 Jan 2016) at $45.57 per share of BXLT.  I was late to the Baxter party, buying into it just prior to the Baxalta spinoff due to valuation concerns.  These were confirmed shortly after spinoff with Baxter now a resident of my penalty box following the delivery of my very first (and currently only) dividend cut.

 

Having persevered, we are now being justly rewarded.  To break out the benefits – it’s a cash and stock transaction:

  • .1482 sh of SHPG and $18 for every BXLT share.

This represents a 13.8% premium over Friday’s close and a 22.5% premium over cost.  Not too shabby a return for six months.  Then reality sets in.  The negatives are many:

  • Has a formal ruling been received regarding tax consequences due to the spinoff
  • Impact of Shire’s impending move from Ireland to the UK on taxes
  • Shires’ dividend rate (currently ~.3%) on an interim/final schedule

Although I like the combination and the pipeline, this deal calls for a longer term view than I’m willing to provide.  Therefore, I anticipate selling prior to or shortly following the merger depending on valuation (i.e., is the $18 premium effectively priced in).

Continue reading