Allen Global Partners, a New York based hedge fund, posted an average return in 2014. The fund was up 0.96% return in Q1, according to a quarterly update seen by ValueWalk. Like other funds of its kind, Allen Global is also smelling a strong whiff of merger activity in this year that will intensify as more industries move to consolidate. The one billion dollar fund invests in both credit and equities.
The quarterly letter also noted a significant increase in multi-billion dollar merger activity, it pointed out that 40% of M&A events in Q1 were deals worth more than $5 billion. The funds have major exposure in European markets as well, which accounts for 70% of its credit exposure. Allen Global seeks to tap into distressed debt opportunities where catalysts like refinancings and sales can push up the fund’s holdings.
Allen Global gains from Forest Labs
In Q1, the fund made profit in Forest Laboratories, Inc.(NYSE:FRX), Orion Cable GmbH, SunCoke Energy Partners LP (NYSE:SXCP) and Koninklijke KPN N.V. (AMS:KPN). Forest Laboratories has traded up in the last quarter due to favorable acquisition news. Forest announced in January that it will be buying Aptalis, a pharmaceutical company specializing in drugs for gastrointestinal diseases and cystic fibrosis, in a $2.5 billion deal. Not much later, Forest itself recieved an offer from Actavis PLC which put a 35% premium on Forest’s market value at that time. Shares of Forest are up nearly 50% YTD.
Telecom M&A wave in Europe
Koninklijke KPN is a favorite among hedge funds. The Netherlands based company is hot acquisition target in the European telecom industry. KPN recently spun off its German subsidiary E-plus to Telefonica Deutschland Holding AG (ETR:O2D) (FRA:O2D) in a $11 billion transaction. The Dutch company is held by Odey Asset Management, Polygon Global and TT International and others. Mexican telecom giant América Móvil SAB de CV (NYSE:AMX) (NASDAQ:AMOV) holds a 30% stake in KPN and has made unsolicited bids to buy the company. The general expectation is that sooner or later KPN will be taken over by some other telecom major as the industry consolidates. Allen Global exited the position in Q1. Allen Global’s investment in Orion Cable also seeks to benefit from the same consolidation wave. The German cable operator emerged from bankruptcy in 2011 and since then tried to sell itself unsuccessfully. The hedge fund thinks that as the company is stabilizing, it could become publicly listed or could be bought by a larger operator.
Allen Global on SunCoke’s master limited partnership
SunCoke Energy Partners LP (NYSE:SXCP) makes metallurgical coke which is used in the blast furnace technique for making steel. Allen Global thinks that SunCoke’s master limited partnership (MLP) that was formed in July 2013 would be the cornerstone of increased valuation in future. The MLP allows SunCoke to have the majority ownership in its most of its coke plants, the letter explains,
“The MPL which is targeted to yield-oriented investors, gives SunCoke a lower cost of capital that it can pass on to its customers. Following the expiry of a tax sharing agreement with Sunoco, during the first quarter SunCoke announced the sale, or drop-down, of additional coke assets to its MLP. We continue to hold an investment in both the parent company and the MLP as we anticipate that SunCoke will, over time, sell all of its coke operating assets to the MLP, at which point the parent company’s valuation should benefit from increased distributions from its general and limited partnership in the MPL.”
Allen Global’s returns detracted from its position in Cairn Energy PLC (LON:CNE) and Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD).