All posts by Oliver

Trian Partners (Peltz, May, and Garden)

Trian Partners

Trian was created in 2005 with a focus on an operations-centric investment strategy. They leverage the three founders experience in operations to identify need and implement change at targeted companies.

One of my personal favorite aspects of Trian is with each activist campaign they release an analysis that outlines a well researched reason for the campaign and some thoughts around solutions. It is a great tool for the aspiring activist to get at inside look at the due diligence required for a campaign.

They have executed three major activist campaigns to date:


September 2014: Press Release and Analysis


March 2014: Press Release and Analysis

February 2014: Press Release and Analysis


June 2012: Press release and Analysis

Lazard stock has had remarkable performance post-2012:

Lazard Stock Price

Third Point Advisors (Dan Loeb)

Letters to Yahoo:

  1. First (May 9, 2012)
  2. Second (May 3, 2012)
  3. Third (March 28, 2012)
  4. Fourth (March 14, 2012)
  5. Fifth (Sept 14, 2011)
  6. Sixth (Nov 4, 2011)

Letter to Pogo (Dec 1, 2006)

This letter really showcases Loeb’s ‘poison pen’ technique with quotes such as “In the one and a half decades you have run Pogo, shareholders have suffered sub par returns. Your track record is long and meager, and it is time for change.”

As a result of a subsequent proxy battle Loeb gained two board seats for himself and his senior PM Bradley Radoff. Later in 2007 an acquisition of Pogo was announced by Plains Exploration & Production Co. for $3.6B.  Loeb agreed to support the acquisition.

Letter to Nabi Pharma (April 27, 2006)

To reiterate, we insist that new bankers be immediately retained and that a bona
fide public sale process be commenced immediately. Anything less than finally
creating substantial value for Nabi shareholders, rather than continually paying
lip service to it while acting otherwise, is completely unacceptable.


Daniel S. Loeb
Chief Executive Officer
Third Point LLC

And the result? At the end of 2006 Third Point and Nabi settled with Third Point directors being assigned to the board as well as the forming of a special committee to pursue strategic alternatives. Eventually Nabi was merged with Biota Holdings Limited.

Letter to Ligand (Sept 23, 2005)

Letter to Star Gas (Feb 14, 2005)

Perhaps the most scathing and personal attack resides in this letter:

Sadly, your ineptitude is not limited to your failure to communicate with bond and unit holders. A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America. (I was amused to learn, in the course of our
investigation, that at Cornell University there is an "Irik Sevin Scholarship." One can only pity the poor student who suffers the indignity of attaching your name to his academic

And this gem with regards to the CEO’s mom being a paid board member:

Should you be found derelict in the performance of your executive duties, as we believe is the case, we do not believe your mom is the right person to fire you from your job.

It’s hard not to admire his panache.

I have known you personally for many years and thus what I am about to say may seem harsh, but is said with some authority. It is time for you to step down from your role as CEO and director so that you can do what you do best: retreat
to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow 
socialites. The matter of repairing the mess you have created should be left to professional management and those that have an economic stake in the outcome.

Letter to Salton Corp (Sept 20, 2004)

Letter to Intercept (May 27, 2004)

Letter to Western Gas (April 25, 2004)

Letter to Penn Virginia (Feb 27, 2002) and another (March 11, 2003)

Is solar competitive now?

I recently came across the following chart and it has me rethinking my position on solar.


Source: Bloomberg (EIA, CIA, World Bank, Bernstein analysis )

Subsidization has always frightened me. Partially because it indicates a lack of competitiveness and partially because the political risk of the subsidy being removed is too significant and unpredictable. 

Future success will rely on advances in energy storage rather than advances in solar technology. The chart above shows so called ‘grid parity’ in which solar can now be priced competitively with LNG and Brent. Its mind boggling how quickly the cost has decreased and while the pace of improvement is clearly unsustainable it is likely to decrease further.

From a cursory glance the industry is still too speculative but I put the chart up as a placeholder to remind me that at some point there will be good investments.


Long Live the Inefficient Markets Hypothesis.

Every finance class in every business school discusses the efficient markets hypothesis (EMH) in some depth. The theory introduced by Eugene Fama sought to show how financial markets and their rational participants process information efficiently and that above average returns cannot be made consistently. Visit any popular investment site with comments enabled and you will quickly see these so called rational disseminators of information acting ‘efficiently’.

In their most stringent form, Fama’s theories imply that the market has already incorporated all available public and private information about possible future price movements and that any further movement in price is completely random and unpredictable. True practitioners of the EMH believe there can be no early warning signals (because the price would already incorporate it) and so help to build up market bubbles based on the belief that there is absolutely nothing that can be done. Some people blame Fama’s theories for contributing to the 2007/2008 meltdown[1].

The EMH theory gained significant traction and arguably proved itself wrong in the process. We are currently experiencing a generation of indexation of nearly epidemic proportion. Several papers citing that the average fund does not outperform the market in the long run have led to huge inflows of funds into passively managed ETFs. These papers add weight to the EMH practitioner’s argument[2], further igniting substantial ETF inflows.

Total ETF Inflows


No sign of deceleration in 2014 as the number is reported to be over $1.8 trillion and its only July. If the money were to make a speedy exodus away from ETFs where would it go? Can it really be said that it would be dispersed completely efficiently taking into account all public and private information? Despite good intentions, this massive flow of funds all moving in one direction ends up creating market inefficiencies. ETFs leave orphans in their wake as they track sectors and indices where some companies are just slightly too small or not quite a fit.

Another classic example of business school gobbledygook is that of beta, one of the building blocks of the Capital Asset Pricing Model (CAPM) as well as a common determinant of an individual stocks level of riskiness. But I’m not here to argue the valuation technique; I use it regularly, even if only because it is the least dull tool in the box. I only bring it up to show that sometimes a theory doesn’t hold water when you think about it simply. This example is from the legendary investor Warren Buffett:

“The Washington Post Company in 1973 was selling for $80 million in the market. At the time, that day, you could have sold the assets to any one of ten buyers for not less than $400 million. […] Now, if the stock had declined even further to a price that made the valuation $40 million instead of $80 million, its beta would have been greater. And to people who think beta measures risk, the cheaper price would have made it look riskier. This is truly Alice in Wonderland. I have never been able to figure out why it’s riskier to buy $400 million worth of properties for $40 million than $80 million.”[3]

Can you? What Warren is alluding to is a market inefficiency created by risk aversion, or possibly inefficiency due to a misunderstanding of beta. Many people given a 50/50 probability to either lose $100 or win $110 will refuse the bet[4]. Risk aversion is just one part of behavioral psychology that impacts the market and plays a role in determining stock prices. Behavioral psychology governs market sentiment which appears to be a leading indicator of market irrationality. A rational mind may presume that inefficiency follows irrationality.

The problem about the EMH is that it requires market participants to be rational about the one thing that humans cannot be rational about, money. We have a psychological disposition that makes it difficult for us to make rational financial decisions, especially those including loss or the potential for loss. Aversion to risk is widely documented, and the VIX shows just how much people are willing to pay to avoid risk. In fact, one of the largest unexplained mysteries of the stock market owes its apparent mysticism to risk aversion. Equity risk premium (ERP) is supposed to be the excess return investors require for holding risky stocks. But an unexplained inefficiency occurred when researchers noticed that the ERP was too high and that some of the premium should have been removed by arbitragers[5]. One plausible explanation for this ‘puzzle’ is the existence of widespread risk aversion.

So where does all this inefficiency, irrationality, and misunderstanding of fundamental finance concepts leave us? Celebrating I hope! Inefficiency means there is room for savvy active managers to outmaneuver their competition. As a bottom-up investor it means I’m not wasting my time and as a value investor it means there are truly neglected and undervalued investments waiting to be discovered. I say, long live the inefficient markets hypothesis.

[1]Fox, Justin (2009). Myth of the Rational Market. Harper Business.

[2]They also add fuel to my fire as, in my opinion; they study a flawed argument in the first place. The stock market past the market return is essentially a zero-sum game. All market participants fight for gains above the average total return (which is what a broad index should generate) at the expense of market losers. So the average active fund is fighting institutional investors and individual investors to produce an above average market return. Because of the added costs of actively managing money it is an uphill battle and so, not surprisingly many managers fall below a passively managed benchmark. But, the great investors of our time have proven that they are not average money managers. If you don’t believe me read about the protégés of Benjamin Graham and view their 50+ years of results. These above average investors are winning from below average investors. Graham’s protégés have probably caused several thousand fund managers to underperform in the last half century.

[3]Buffett, Warren (2004). “The Superinvestors of Graham-and-Doddsville”. Hermes: the Columbia Business School Magazine: 4–15.

[4] Rabin, Matthew. 2000. “Risk Aversion and Expected-Utility Theory: A Calibration Theorem.” Econometrica. 68(5): 1281-1292

[5] Mehra, Rajnish; Edward C. Prescott (1985). “The Equity Premium: A Puzzle” (PDF). Journal of Monetary Economics15 (2): 145–161. doi:10.1016/0304-3932(85)90061-3.

Make a Staggering 360% Annualized Return with CBS Tender Offer

I recently wrote an article that discussed an unusual stock market opportunity for savvy investors.  One of these opportunities is currently available and I highly recommend people consider it. It is a rare opportunity to pick up over $400 profit with relatively low risk. If you are new to odd-lot tenders I suggest reading the original article here.

The odd-lots clause in the tender offer allows guaranteed tender for shareholders of less than 100 shares. In other words, if you own 99 or less shares you are not subject to proration which is typically the largest risk in an M&A tender offer.

You can read the tender offer document here.

What about profit?  99 shares*$64*7% = $443

The profit above is a rough estimate and depends on the volume-weighted average price (VWAP) which is calculated as a simple average between July 7th and July 9th. In other words, the $64 share price I used in the profit calculation above is subject to change.  If the price of CBS shares increases the profit will be a bit higher and vice versa.

Annualized gain: I will admit to sensationalizing the title just a bit. The lockup period is very short as the offer expires on July 9th and we should see CBSO shares in our accounts shortly after. If we were to be able to recycle our money into the same opportunity every week we would get an annualized return of ~360% (52 weeks*7%) excluding compounding. However, in reality these opportunities are not very common and certainly not a weekly occurrence.

What about risk? If there is an insufficient number of shares tendered the offer could fall through.  This seems unlikely, barring any unusual price movement in either of the stocks, as the 7% premium should tempt enough shareholders into tendering.

An upper limit to the exchange ratio is set at 2.19x which could tentatively be breached depending on share price movements. The best way to mitigate this risk is to not purchase CBS shares until end of day on the 9th, which would be the last opportunity to buy before the midnight cut-off.

The final risk is that when the CBSO shares are received there could be a sell-off as people, like us, try and lock-in the gain. It is possible to give up a decent amount of the profit on exit.

You could pure arbitrage this play by shorting CBSO while simultaneously going long CBS and tendering the shares. You would have to determine the proper exchange ratio which should be roughly 1.9 times so you will need to be short ~188 shares of CBSO for 99 shares long CBS.  Unfortunately, the shorting fee appears to be too expensive to make it viable.

Disclosure: long CBS and I intend to be short CBSO via options prior to the offer close date.

M&A Special Situations: The (not so) Lucrative Details of Odd-Lot Tenders

Brief Overview of Tender Offers:

On occasion, company’s buyback shares by way of tender offers, these allow them to purchase a defined number of shares at a set price. Companies often choose buyback through tender rather than over the open-market as they can purchase a significant number of shares without moving the market price above the set tender amount. Companies also use tender offers to buyback bond issues and to give holders of highly illiquid securities (often closed-end funds that do not trade on any exchange) a means of exiting their investments. Tender offers are subject to proration (proportional distribution based on % of ownership) so in the case of oversubscription only some shares from each holder of record are purchased, unless, there is an odd-lots clause.

The Odd-Lots Clause:

The odd-lots clause is an increasingly rare, somewhat archaic, but nonetheless lucrative clause that occasionally shows up on tender offers. It typically states that the first shares to be accepted for tender will be from shareholders who own less than a minimum number of shares (often 100), which is known as an odd-lot.

The reason for the odd-lot clause, and the reason it is considered archaic, is that before the efficiencies of computers a large number of shareholders holding a small number of shares was a hassle to the company. In other words, they could save money on administrative expenses if they were to reduce the number of holders of record; hence, the birth of the odd-lots clause. That clause has stuck around in the boilerplate of many tender documents even if the need for it has not.

A Real Example of Profiting from Odd-Lots:

Example 1: GSOL

A recent odd-lots opportunity was that of Global Sources Ltd. (GSOL), Bermudian B2B media company focusing on the Chinese market. The offer included the following odd-lots clause:

What will happen if more than 5,000,000 Shares are properly tendered and not properly withdrawn? If more than 5,000,000 Shares are properly tendered and not properly withdrawn, we will purchase Shares: first, from all holders of “odd lots” of fewer than 100 Shares who properly tender all of their Shares and do not properly withdraw them before the Expiration Date; and second, from all other shareholders who properly tender Shares, on a pro rata basis.”

(Source SEC, found here:

GSOL filed its tender offer with SEC on March 13, 2014 and made the amendment containing the odd-lots clause on April 30th.  The following is GSOLs price history between March and June when the tender was paid.

GSOL OddLot Tender

Source: Yahoo Finance

The March 13th tender announcement price jump can be seen near the start of this chart as investors reacted to the news of the tender at $10.  The second large price increase was a reaction to additional information provided on April 30th, including the odd-lots clause details. It is worth noting that during the entire time period, between tender announcement and tender completion, the price never came close to the tender price of $10. This spread exists because of proration risk and is where the money is made.

Let’s do some simple math to quantify the opportunity. While some people got in at ~$8 on May 13th let’s use an average price of $8.50, which is roughly what you would have paid had you waited to confirm that an odd-lots clause would, in fact, be included. Either way $2/8 or $1.5/8.5 we are looking at an effectively awesome yield of ~19% over 2.5 months. The ability to recycle the money into a new opportunity means we are looking at well over an annual effective return of around 100% provided the opportunities come up frequently enough.  Taking advantage of odd-lots is not without risk, and these are discussed at the bottom of this article.

Scaling Odd-Lot Tenders:

The primary disadvantage of the odd-lots special situation is an inability to scale.  Making well above normal returns on a tiny portion of your portfolio is hardly going to be impactful at year end.  People have scaled by opening multiple accounts sometimes in the range of 10-40 separate accounts.  I am not familiar with the legalities of this but would be comfortable opening one per family member or one per separately managed account if you are a fund manager.

Finding Odd-Lot Tenders:

Typically the way to find tenders is to search the SEC for an SC-TO form and keep an eye out for an odd-lots clause.

The easiest way is to follow tenders is to follow a few investment bloggers who often do a write up when the offers come up.  Oddball and OTC come to mind, I’ll also be doing some write-ups of my own which you can view at

Risks of the Odd-Lot Tender Special Situation:

Similar risks apply to odd-lot tenders as apply to most M&A deals. The primary concern is that the tender falls through, a significant number of things can occur between the announcement date and the closing date which can lead to the tender offer collapsing. Another risk that I haven’t heard of but is certainly a possibility is for the company to drop the odd-lots clause sometime after announcing it. As more people take advantage of odd-lots it defeats the purpose of them from the company’s standpoint and that it’s just not worth it. As always, do your due diligence!