Denali Investors: Spring 2010 Special Situations Investing [Slides]

Denali Investors: Rice University / Jones Business School – Spring 2010 Special Situations Investing

Denali Investors – Simple Framework

Survival Investing

Survival = Value + Spec Sits + Options

BlackRock’s Larry Fink: Not all ETF investors are passive

Larry Fink,Laurence Fink, BlackRock, Inc., world's largest asset manager, American multinational investment management corporation, American financial executive, CEO, Chairman, Barclays Global Investors, assets under management, alternative investments, Wall Street, BLK, Hedge funds, valuewalk, ETFs, ishares, robo-investing, robo analysts, quant fundsBlackRock CEO Laurence Fink spoke at Morningstar's recent conference, and he talked about a variety of things, like his concerns about company culture at a time when all the firm's employees are working at home. Despite those concerns, he doesn't think BlackRock will ever be 100% working in the office. He thinks employees will always Read More

Investing = “Art + Craft + Science”

Respect Micro + Macro + Cycles

Portfolio Construction



  • Undervalued stocks
  • Neglected
  • Long time horizon
  • Favorable risk/reward


  • Flawed business, management
  • Unrealistic expectations
  • Negative catalysts


Special Situations

  • Non-recurring; Catalyst
  • Internal/External
  • Mergers
  • Tender Offers
  • Spin-offs
  • Capital Structure Arbitrage
  • Reorganizations
  • Liquidations
  • Bankruptcies

An exceptionally flexible search for opportunities…

What Would Buffett Do?

  • No system can guarantee success
  • Markets can be unforgiving

Yet investing doesn’t need to be anxiety ridden.

Be able to pick your spots and roll with the punches.

A Fundamental Question

The Risk-Return Relationship

  • Show of hands – What does the Risk-Return Relationship look like?

Denali Investors

Case Study #1

What do you get when the following get together?

  • An industry no one wants to touch
  • Two industry leaders
  • Sandbagging management
  • A catalyst

Cardinal Health’s SPINOFF of CareFusion


Buy ParentCo, and get SpinCo for very cheap

Deal Background

  • Summer 2009 – CAH was trading at $30 – $31 per share
  • CAH was still expected to close the spin in Q3 2009

Denali Investors

Mr. Market says NO to healthcare for various reasons…

Cardinal Parent (CAH)

  • The new CAH is now organized into two segments.
  • The Pharmaceutical Segment, which accounts for 2/3 of profits, includes pharmaceutical distribution, manufacturer and specialty services, and nuclear and pharmacy services.
  • The Medical Segment, which accounts for 1/3 of profits, includes medical product distribution, lab product distribution, and infection prevention products.
  • Pharma Distribution is an industry in the final innings of consolidation in which the top three players (CAH, MCK, and ABC) have 90% market share.
  • Outlier in distribution economics…

CareFusion Spinoff

  • CFN is another industry leader with attractive metrics and margins and additional room for upside in fundamentals.
  • CFN offers product lines in the areas of IV infusion, medication and supply dispensing, respiratory care, infection prevention and surgical instruments – a razor/razor blade model.
  • The industry has a longer runway and is quite fragmented and under penetrated.
  • Demonstrated maintenance of pricing discipline and expressed desire to continue to grow organically.

See full PDF below.