Portfolio Manager at Brail Partners. Focused on merger arb, contested deals, and event-driven equity and debt. Based in NYC. Nothing here is investment advice.
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Finally, the Warner Brothers deal is set to close. The states attorney generals’ lawsuit was settled today, along with the nuisance suit by the Hollywood Writers guild. Holders will get paid their $31 in cash in about 2 weeks.
This deal should have closed in July. It’s a real flaw in the US legal system that companies can submit its proposed merger to the federal government’s antitrust authorities, be fully vetted and approved over a tedious, multi-month process, be approved by the 50 other countries in which the merged company will do business, and yet some politically ambitious Attorney General’s can hold a deal up with a preposterous antitrust theory just to extort concessions that will sound good on a podium to their electorate, but accomplish very little.
The Warners deal was particularly vulnerable to this gambit as they had agreed to pay a ticking fee of $7 million a day after October 1. So the states Attorneys Generals waited until the parties were ready to close their deal to bring their lawsuit to run them into that penalty period.
The $-80 billion that will be paid out as merger consideration should’ve been paid out three months ago. Warners holders would’ve had better use for that money the last 3 months than to sit and wait for this silly lawsuit to be settled.
i am surprised the merger spread remains at 14c. The financing is almost complete, Paramount is incented to close ASAP due to the ticking fee starts to accrue Oct 1 - this Thursday - adding $.0027 daily.
So an Oct 9 close pays $31.02/share, which is better than 19% annualized. the short time frame amplifies changes in annualized spread, and the deal is large, but this is unusually wide for a deal with no real outs for the buyer.
EBAY- Ryan Cohen filed an amended 13D. He took delivery of all the stock held by TD under derivatives and bought more at an average price of $108 bringing his ownership to 9%, worth over %4.5b.
I tweeted on May 19 that we were short as we saw no path to friendly deal, the earliest Cohen can apply pressure is next Spring's annual meeting, and he is financed only with a highly confident letter.
The risk/reward is now balanced, and we have covered our short for a tiny gain. I look forward to monitoring this as it moves to a conclusion, there could be value if $EBAY capitulates.
Here is the 13D sec.gov/Archives/edgar/data/…
Ryan Cohen’s 13D this morning discloses more recent purchases of eBay via derivatives. He now owns thru the derivatives about 6.9% of eBay, and paid as high as $115 for stock. This may explain eBay’s recent strength. He will convert his position to common when he clears Hart Scott antitrust review, which is a formality.
I wrote about the situation at length. We are short eBay.
Ryan Cohen's $125 hostile bid for eBay is being priced by the tape as if it's more likely than not to close.
It isn't. My firm is short EBAY.
Here's why the calendar, the math, and the board all sit on the side of the shorts. 🧵
Ryan Cohen's $125 hostile bid for eBay is being priced by the tape as if it's more likely than not to close.
It isn't. My firm is short EBAY.
Here's why the calendar, the math, and the board all sit on the side of the shorts. 🧵
Base case over 6–9 months: $100–108.
Wrong only if a real bidder shows up, or Cohen makes the math close. Neither has happened in two weeks of public scrutiny.
EBAY looks to us like a $100 stock pretending to be a $115 stock.
Full piece: dbrail.substack.com/p/why-we…
Brail Partners is short EBAY. Not investment advice
Why Sunday Nights Feel Different open.substack.com/pub/dbrail…
I have always felt Mondays are way busier than the rest of the week for merger news. Now I have been able to quantify it. I hope you find this interesting.
The Lululemon proxy fight is heating up ahead of the June annual meeting. On the heels of a horribly received appointment of a new CEO, the company came out with its preliminary proxy heapimg tons of dirt on founder Chip Wilson, making him seem like a irrational lunatic, insisting everybody he meets with read his book, implying his consulting work with Alo and Vuori is treasonous, and painting him unfit to choose directors for Lulu’s board. Wilson’s fight letter today I thought was excellent, highlighting the long-term negligence of the board that has caused the 65% decline in Lulu’s stock price as the product line has lost all relevancy.
Given, Alo and Vuoir have taken share from Lulu and now price their garments more or less in line with lululemon now rather than at previous discounts, just highlights that Chip Wilson knows what he’s doing, more so than Lulu‘s management or board.
I believe the proxy advisors will have no choice but to support Chip Wilson’s three person slate given the immense value destruction over the last two years.
We have yet to hear from Elliot. I also think this is ripe for yet another activist to pile in as that will easily push this over the finish line. A refreshed board with Chip Wilson’s direct involvement in the company could easily right the ship, and at 6X EBITDA there is ample room for share price appreciation from here.
Disclosure- long $LULU
Lululemon's hiring of a marketing exec as CEO is going to cause both of Chip Wilson and Elliot Managements collective heads to explode. $LULU has been so lost in the woods with a multi-year collapse in product innovation that the market is valuing this once respected athleisure leader at <6x EBITDA. Hiring Heidi O'Neil, one of John Donahue's key management teammates as he destroyed Nike's future by his idiotic DTC strategy that took Nike off retail shelves and opened the door to ON, Hoka and others to steal market share, is not a good look for the LULU board.
Proxy fight incoming, hard to see how Wilson and/or Elliot doesn't completely re-orient this company. We bought some yesterday, this is tailor made for radical change. Meeting is in June.
I think the decline in the alternative managers based on fears around private debt, such as Apollo and Blackstone, is overdone.
I think they will have a hard time selling this product to retail because the limited liquidity feature obviously is flawed. But institutions will buy the asset class with no liquidity. From their perspective it’s marginally better than syndicated bank loans, they pick up a little extra return in exchange for the liquidity, and I don’t think the default experience will be materially different in the two types of senior lending.
One area that is not getting enough scrutiny is the situation at Blue Owl. Some of the principals have levered their stock thru margin loans at much higher prices. The terms of these loans are opaque. But with the stock making fresh lows every day, at some point they’re gonna run out of additional shares to post against the loan and I have no idea what assets they may have outside of $OWL stock to post to prevent the LTV rising to a level that we may see forced selling.
I think it’s in the company‘s interest to get in front of this and disclose where things stand with these margin loans. In the meantime, as far as I know, these issues do not exist at Blackstone Apollo, KKR, Ares etc., which makes them relatively more attractive if you believe the private credit issue slowly goes away
$OWL $APO, $BX, $KKR
Discl long APO BX