FT : Chinese investor charged over DreamWorks shares purchase

Chinese investor charged over DreamWorks shares purchase
SEC claims inside information led to $29m in quick profits on $3.8bn Comcast deal

As Comcast last year conducted secret talks about a potential acquisition of DreamWorks Animation, five Chinese investors — including an elderly couple in Beijing — acquired an enormous stake in the storytelling studio.

Over a three-week period ending on April 25, those five accounts purchased more than 2.1m DreamWorks shares, amounting to nearly 17 per cent of all trading in the stock, according to the Securities and Exchange Commission. 

When news of Comcast’s $3.8bn purchase of DreamWorks broke on April 26, the Chinese investors reaped $29m in quick profits, the SEC says. 

It was not just good luck. The accounts were controlled by Shaohua “Michael” Yin, a managing director at Hong Kong-based Summitview Capital Management, who co-ordinated their trading using inside information he had gained about the DreamWorks sale, according to the SEC complaint. 

“The precision with which these trades were timed, combined with the sheer scale in which they occurred, could not be the product of chance,” the commission said in a civil complaint filed in federal court in Manhattan. “ . . . They proved to be massively profitable.” 

The complaint charges Mr Yin, a 2005 graduate of the Wharton School of Finance, with securities fraud and names as relief defendants the account holders: Lizhao Su, 78, Mr Yin’s mother; Zhiqing Yin, 79, the defendant’s father; Jun Qin, 45, a quality manager at Legrand Electrical Co in Beijing; Yan Zhou, 33, a Beijing schoolteacher; and Bei Xie, 29, an employee of PetroChina Coalbed Methane Co. 

Mr Yin, who splits his time between Beijing and Palo Alto, did not reply on Friday to an email requesting comment. Before joining Summitview, a private equity firm, he worked for UBS Investment Bank and Warburg Pincus Asia. According to his LinkedIn profile, he earlier worked at Microsoft as a software design engineer. 

On February 3, as Mr Yin prepared to board a flight to China at San José International Airport, FBI agents confronted him with a warrant authorising a search of his mobile phone “for evidence of insider trading,” the complaint says. 


Mr Yin asked the agent if his accounts would be frozen. Over the next few days, Mr Yin and the others named in the court action tried to withdraw more than $22m from the accounts, it is alleged.

On Friday, the SEC said it had obtained a court order freezing $29m in the accounts, representing the illegal profits from Mr Yin’s alleged insider trading. The commission tied Mr Yin to the suspicious trading through a review of internet addresses used to place trades through the Chinese investors’ Interactive Brokers accounts, the complaint said. 

The five accounts, which previously had never traded in DreamWorks, began acquiring shares immediately after PAG Asia Capital on April 4 offered privately to buy the company. The accounts bought DreamWorks shares on every trading day between April 4 and April 25, when rumours of a more lucrative Comcast deal went public, eventually emerging as one of the company’s 10 largest shareholders. 

The SEC complaint says Mr Yin’s five accounts also profited from suspicious trading ahead of market-moving news in another US company, Lattice Semiconductor Corp, and three Chinese companies, 58.com, Ctrip.com and Giant Interactive Group. 

“Despite the defendant’s alleged attempts to hide his control over these accounts, the SEC’s data analytic investigative tools enabled us to determine who was behind the suspicious trading,” said Michele Wein Layne, director of the SEC’s Los Angeles regional office, which led the probe. 

The SEC is seeking a permanent injunction against Mr Yin along with disgorgement of his alleged insider trading gains and civil penalties. The commission wants the relief defendants, who are not accused of wrongdoing, to surrender profits from Mr Yin’s trading along with interest.

FT : Investors face a European dilemma as elections loom

Investors face a European dilemma as elections loom
Improving economic signals may not be enough to soothe political worries

The European government bond market had what is known in technical circles as a minor freak-out this week.

Yet as yields in eurozone bonds diverged sharply, the markets for stocks, corporate debt and currencies carried on regardless.

The Cac 40 index of large French-listed companies was barely changed on the week. The euro weakened per cent against the US dollar, but at the same time the dollar strengthened against other weighty currencies, suggesting little fear for the future of the eurozone.

Meanwhile, the difference between the yield on benchmark French bonds and those of Germany reached its greatest extent in more than four years.

As prices move in the opposite direction to yields, the movement could be taken as a sign of investor concern coinciding with polls showing Marine Le Pen, the far right and anti-euro politician, is the most popular candidate in France’s approaching presidential election.

The contrast highlights a dilemma for investors in Europe: whether to focus on improving economic signals, or the din created by upcoming elections in France, the Netherlands and Germany, as well as a possible early return to the polls in Italy.

“All sensible analysis suggests you are going to end the year with a political situation that doesn’t look that different from where we are now, if you trust the polls,” says Charlie Diebel, head of rates for Aviva Investors.

He says French bond yields are starting to become attractive, and is making investments such as buying Polish bonds and selling the German equivalent, on the basis Bunds are expensive and prices may not reflect improving economic conditions.


Indeed, while some investors may be twice bitten, thrice shy, after a year when a majority of British voters chose Brexit, and a winning US minority elected Donald Trump, many are more relaxed.

Alex Dryden, global market strategist at JPMorgan Asset Management, says “political systems in Europe are designed in such a way that it is hard for fringe parties to push their agendas on to a country. They were created in that way on purpose after the second world war.”

Investors should look through the political clouds to focus on Europe’s economic recovery, he says.

Growth in the eurozone economy outpaced the US last year, at 1.7 per cent versus 1.6 per cent, while unemployment in the region has fallen to 9.6 per cent — the lowest level since May 2009.


“The economic recovery is pushing up cyclical stocks. Particularly consumer discretionary stocks — the things people pulled back on as unemployment rose they are going back to as jobs recover. Financial stocks are staging a comeback too as bond yields rise — eurozone bank stocks have gained over 40 per cent since last summer and we think they have further to go.”

BlackRock also announced this week it favours European equities, saying political shocks have kept investors overly cautious towards the sector, which should benefit from the global economic pick-up.

Mauro Vittorangeli, fund manager at Allianz Global Investors, says when money managers outside Europe see lurid stories about fringe politicians gaining traction they may forget it is one of the most stable economic regions in the world.

The European Central Bank’s plan to wind down bond purchases is the real reason prices across eurozone debt markets are falling, he adds, so political fretting presents opportunity.

“Brexit was a great example of this. Between the first and second round of votes in France in April and May there may be a level that we will buy at,” he says.

Yet there are some who question the underlying economic optimism.


Dhaval Joshi, European strategist for BCA, argues that within the big trends of economic movement there are smaller oscillations, what he calls six to 12-month mini-cycles which result from the interaction of bond yields, bank lending and the activity of businesses and consumers.

In this analysis the bond market had begun to turn early last year, but was interrupted by Brexit and then exaggerated by the victory for Mr Trump which has raised hopes of faster economic growth. Judged in six-month periods, slower growth in bank lending in Europe, the US and China since October presages a slowdown and lower bond yields as the mini-cycle plays out.

It may be that a fundamental acceleration in the world economy is under way, taking Europe with it. But equally, recent strength may give way to the low growth narrative of recent years. Mr Joshi’s recommendation for the next three months is to be wary of the bank-heavy equity indices of Italy and Spain.

Indeed, while many have European political risk in mind, his attention is elsewhere. “The big contributor to the upcycle we’ve had in the last 12 months is China,” he says, the result of a significant stimulus programme which has since begun to ebb. “This mini-cycle downturn does raise the question, what does China do next?”

>>> Sanofi hires Messier Maris to conduct CEPiA sale

Sanofi hires Messier Maris to conduct CEPiA sale - MergerMarket

French pharma group Sanofi [EPA:SAN] has mandated Messier Maris to sell contract manufacturing subsidiary CEPiA, three sources familiar and a sector banker said.
The process is at an early stage, the sources said, with the company expected to come to auction in March, one of them added.
Sanofi is sounding out large-cap private equity bidders, the first and second of the sources familiar said. Some funds are trying to preempt the process, the second source familiar said.
CEPiA generates approximately EUR 60m EBITDA on EUR 500m sales, said the first source. It posted EUR 400m in sales in September 2013, 90% of which came from outside France, according to CEPiA’s vice president, Jacques Tavernier, at the time.
CEPiA supplies intermediates and active pharmaceutical ingredients (APIs), custom synthesis and API contract manufacturing from small molecules to biologics, ranging from lab scale to commercial quantities.
To handle complex industrial projects, CEPiA relies on Sanofi’s wide industrial network of 16 chemical and biotech sites located in six countries. It manufactures intermediates and APIs for third parties and has more than 200 APIs on catalogue sold in more than 80 countries.
Sanofi declined to comment. Messier Maris did not return requests for comment.

>>> US telecom players maneuver around T-Mobile sale possibilities

US telecom players maneuver around T-Mobile sale possibilities - MergerMarket

  • Deutsche Telekom increasingly confident in T-Mobile
  • Wireline companies see need for wireless
  • Verizon deal seen as live possibility

Deutsche Telekom’s [ETR:DTE] declining urgency to sell T-Mobile US [NASDAQ:TMUS] has complicated the American telecom space, where major players have been positioning themselves for the convergence of wireline and wireless services, according to a source familiar and a source briefed on the matter.
T-Mobile has long been seen as the odd man out in US telecom, waiting for an inevitable acquisition by a suitor. A 2011 merger with AT&T [NYSE:T] was blocked by the Federal Communications Commission and the Justice Department. In 2014, FCC's pushback led then-larger peer Sprint [NYSE:S] to drop its own plans to acquire T-Mobile.
However, since Donald Trump's victory in the presidential election, the new Republican administration – with a more traditionally conservative laissez-faire view of regulation – has led to speculation that Sprint would take another run at T-Mobile.
Since 2014, the relative status of both companies has changed: T-Mobile is now larger than Sprint by subscriber count, lifted by an extremely strong turnaround that has seen it consistently posting the strongest net customer acquisitions quarter after quarter in the industry. Sprint, meanwhile, has sagged, with majority owner Softbank [TYO:9984] at times seeming to waver in its commitment to the company. This has forced Sprint to use unorthodox methods of raising additional capital such as placing spectrum assets in three subsidiaries that then used them to secure a USD 3.5bn bond issuance.
Deutsche Telekom, the majority owner of T-Mobile US, has real doubts about the “financial liability” associated with a Sprint deal, the source familiar said.
The German telco does not see the need to do a deal now that T-Mobile US is cash-generative and its price expectations would be “significantly higher” than during previous negotiations, said the source briefed.
Sprint, for its part, may try to tack toward a different course: at a recent investor conference, Softbank CEO Masayoshi Son said that a merger with T-Mobile is not the company’s only course, and that Softbank could even consider selling Sprint.

Wireline players measure their strategy

Long discussed on the sidelines of first Comcast’s [NASDAQ:CMCSA] and then Charter Communications' [NASDAQ:CHTR] attempts to acquire Time Warner Cable, the convergence of wireline and wireless is now seen more and more as an inevitability.
Reports last month that wireless operator Verizon [NYSE:VZ] CEO Lowell McAdam had approached Greg Maffei of Liberty Media [NASDAQ:LMCA] about the possibility of acquiring Charter, in which Liberty holds a significant minority stake, brought the convergence theme to the fore.
Such a deal, said a sector adviser, would have stumbling blocks such as enormous antitrust risk, the need to divest significant assets in at least the New York area and questions around Verizon’s ability to shoulder the enormous debt burden when it is not yet delevered from previous deals. Despite these hurdles, the merger possibility cannot be completely written off, the adviser added.
Uncertainty around the potential for this or any other deal is largely a result of the quiet period currently covering telecom companies, necessitated by the FCC's continuing auction of 600 MHz wireless spectrum during which it is illegal for participants to discuss how they will use or bid for airwaves. This quiet period is clouding analysis of what the wireline players might do, said three sector advisers.
Liberty is not a participant in the auction; Comcast, T-Mobile and Verizon are participants, and thus covered by the quiet period.

CEOs drop public hints

This hasn’t stopped speculation from some players involved: at a recent Lionsgate [NYSE:LGF] investor day, Liberty Chairman John Malone mused about the possibility of the major US wireline companies forming a group to purchase T-Mobile.
The source briefed said Malone is preoccupied with the question of how Liberty’s assets should evolve in the US, particularly given that it has no presence in the wireless space.
However, the adviser said that all signs currently indicate Comcast and Charter are committed to their organic plans to enter the wireless business. Both have an MVNO agreement with Verizon that will allow them to send traffic over the carrier’s network, and Comcast is seen as a serious bidder in the 600 MHz auction.
The two cable companies could collaborate on these organic efforts. Comments filed by wireless incumbents at the FCC at its review of Charter’s unsuccessful attempt to acquire Time Warner Cable were aimed at building an argument against allowing such cooperation and the incumbents are still wary of such a prospect, said the second and third sector advisers.
Cooperation could conceivably extend to forming a joint venture that will hold any spectrum Comcast acquires for joint use by Charter and even the third-largest wireline operator Cox Communications, said the second and the third advisers.
However, should the organic plan fail – as T-Mobile CEO John Legere in an open letter earlier this year predicted it would – a joint deal for T-Mobile is a definite possibility, said the first sector adviser. A group deal would be more likely than any one wireline company making a move, because wireline companies are regional in nature, while T-Mobile is a national business, the source briefed said.
In his letter, Legere went further, predicting that Comcast and Verizon would ultimately have to discuss a merger of equals. If there is some combination of a wireline company and Verizon, Altice [ATC:AS] will be eager to pick up any divestitures, and will offer a good valuation for them, especially if they are in New York, said the first sector adviser and a person close to the company.
Deutsche Telekom declined to comment. Comcast declined to comment, citing the auction’s quiet period. T-Mobile and Verizon did not respond to requests for comment. Altice declined to comment.

>>> Recticel and RealDolmen rumoured to be up for sale and/or delisting

Recticel and RealDolmen rumoured to be up for sale and/or delisting – report (translated)
http://bit.ly/2kDnpcd
The Belgian companies Recticel [EBR: REC] and RealDolmen [EBR: REA] are both rumoured to be up for sale and/or delisting, the Belgian daily De Tijd reported, based on anonymous sources familiar with the companies.
Bois Sauvage, the largest shareholder of Recticel, an international company in the foams and automotive industry, is willing to sell, the report said. An unnamed source told De Tijd that Bois Sauvage wants to sell as much stake in the company as possible. Another anonymous source told the newspaper that an unidentified investment company is interested in a takeover of Recticel.
IT company RealDolmen is also rumoured to be up for sale. The company’s largest shareholder Colruyt is willing to sell the company and to delist it, the report said. RealDolmen is worth about EUR 135m, which could make the company attractive for an investment fund, the report said, again based on anonymous sources.
Furthermore, the article mentioned that the companies Zetes and Resilux are most likely to be delisted.

Barron's : What’s Apple to Do with $246 Billion in Cash?

What’s Apple to Do with $246 Billion in Cash?
Consumers are still excited about the thought of an Apple Car, but Apple will probably use its cash for investments in content and other “services.”

Apple has $246 billion in cash sitting around, and investors have lots of ideas about how the company should spend it. Most of them, for now, seem unlikely.
A Baird survey of U.S. consumers found that 22% would most like Apple to develop a car within the next five years. This was the top response, followed by a preference for an Apple streaming service that’s like Netflix.
Investors have also speculated about the possibility that Apple would use its cash stash to make a big acquisition. Netflix, Tesla, and Disney are discussed from time to time, but Baird analyst William Power says these are unlikely.

Unfortunately for Apple dreamers, the company will probably opt to invest money in less flashy areas, like its “Services” business. This includes the App store and Apple Music, but could come to include video content, too.
“Though acquisitions might help here, we believe investing organically in content, innovative features, and new services should continue to improve the company’s long-term positioning,” Power wrote in a research note Friday.
Investors tend to like when companies branch into services more, because that puts less pressure on annual hardware sales. And that’s key for Apple now that customers are upgrading their iPhones less often or increasingly opting for cheaper, older models when they get a new phone.
Another investor-friendly use for the cash that Apple may choose: buying back more stock. Power notes that 94% of Apple’s cash is overseas, so a policy that makes it cheaper for companies to bring that money stateside “could result in a large increase in share buybacks.” A buyback increases earnings per share, since it means that there are fewer shares outstanding.

Barron's : Macy’s Could Have 50% Upside in a Sale

Macy’s Could Have 50% Upside in a Sale
Investors have many ways to win with the beleaguered retailer, including a takeover and real estate spinoff.

Macy’s is known for promoting marked-down merchandise with bright red tags. After dropping to a recent $31.99 from $73 in mid-2015, its stock sports a bright, 60%-off red tag. Investors might think twice before bypassing this bargain.
Doomsayers believe that the Internet spells the death of traditional retailers, but Macy’s (ticker: M), which owns plenty of bricks and mortar, is fighting back. In recent years, the nation’s largest department-store operator has also become the sixth-largest online retailer. As Macy’s downsizes its physical-store operations, the stock could rise by 20% to 30%. And in a potential sale, particularly one involving the spinoff of the company’s real estate assets, it could be worth $45 to $50. Given Macy’s 4.7% dividend yield, investors are being paid to wait.
Macy’s sales have been in a funk for the past two years, largely due to consumers’ accelerating shift to online shopping. The Cincinnati-based company is expected to report that sales at stores open at least a year fell 3% in the fiscal year ended on Jan. 31, just as they did in fiscal 2016. Wall Street is gloomy about prospects for both the industry and the company, with just seven out of 28 brokerage analysts following Macy’s rating the stock a Buy. That’s an even lower percentage than during the 2008 recession.
This pessimism, combined with Macy’s aggressive steps to turn around its business, suggest that the shares could be near a bottom, and poised to rally. Management plans to cut up to 10,000 jobs out of 157,900, and close 100 poorly performing stores, including 68 this year. That could reduce costs by $550 million annually, freeing funds to invest in the company’s formidable, fast-growing online business and finance other growth strategies.



Barron’s isn’t the only observer to see value here. According to recent press reports,Hudson’s Bay (HBC.Canada), the Canadian company that bought Saks Fifth Avenue and Lord & Taylor, is interested in acquiring Macy’s, as well. Management’s resistance to selling could be weak, as President Jeffrey Gennette is set to succeed CEO Terry Lundgren shortly.
A DEAL MIGHT NOT HAPPEN, but if it does, Macy’s could command $45 a share, or more, given its attractive real estate. Hudson’s Bay had no comment, and Macy’s declined to make senior officials available.
Macy’s property portfolio is estimated to be worth as much as $21 billion, significantly more than the company’s $16 billion enterprise value (stock market capitalization plus net debt). Macy’s has 142 million square feet of retail space, and owns about 400 of 730 Macy’s stores. Among its holdings are trophy properties in New York’s Herald Square and on Chicago’s State Street. Overall, the retailing giant has 880 stores, including those of high-end Bloomingdale’s, beauty-products purveyor Bluemercury, and discounter Macy’s Backstage.
Activist investor Starboard Value, which owns 1% of Macy’s, has pushed the company since 2015 to monetize its real estate. Starboard issued a report early last year valuing the properties at up to $21 billion, depending on how the stores are disposed.
Macy’s could sell the stores through joint ventures with real estate firms and then lease them back via an operating company. The “opco” could be structured with little or no debt, and retain 95% of Macy’s free cash flow, even after the additional rent expense, according to Starboard, which said such a move would create $10 billion of shareholder value. Starboard didn’t respond to a request for comment. Separating into an opco and real estate investment trust would be another way to create value.
Even if Starboard’s estimate is cut by 25%, it suggests that investors are putting a negative value on Macy’s retail operations. Despite the head winds, that’s harsh.

In the past, Macy’s has been resistant to selling property, but that could change. In November, it signed a deal giving Brookfield Asset Management (BAM) a 24-month window to create a development plan for 50 mostly mall-based properties, both owned and leased.
Macy’s has been well managed, and is a “really good brand,” says Michael LaChapelle, a portfolio manager at FoxForge Capital, which owns the stock. The timing is right for a sale, as property prices are high and interest rates low, he says. With the retailer’s sales drooping and big changes needed, that could incentivize Macy’s to “get aggressive on real estate.”
Amazon.com (AMZN) is traditional retailers’ biggest threat. But the market’s anxiety about the Seattle-based e-commerce giant has obscured bullish online trends elsewhere. Macy’s rang up $6.2 billion in e-commerce in fiscal 2016, the latest year with available data. That was equal to 23% of overall sales and up from 19% the previous year, according to internetretailer.com. Macy’s online sales are growing by 15% a year, almost as much as Amazon’s (see nearby table).

Macy’s reports fiscal 2017 results on Feb. 21. Analysts expect revenue of $25.9 billion, and net income of $945 million, or $3.05 a share. That compares with $27 billion, $1.1 billion, and $3.22 in fiscal 2016. Revenue could fall to $24.9 billion in fiscal 2018, producing net income of $907 million, or $3.20 a share, on fewer shares outstanding.
Macy’s trades at an undemanding 10 times fiscal-2018 earnings. If it can shrink and show growth from a smaller base, the shares could get a higher price/earnings ratio, argues Christian Ledoux, director of research at South Texas Money Management, a Macy’s holder. For example, using Macy’s median P/E of 12 would imply a stock price of $39, over 20% above today’s.
ANOTHER THREAT to department stores is the rise of “fast fashion” outlets, such asHennes & Mauritz ’s (HMB.Sweden) H&M, and Inditex ’s (ITX.Spain) Zara, which maintain low inventories and can react relatively quickly to changing fashions. According to a recent Credit Suisse report, department stores accounted for 35% of retail sales in 2015, down from 45% in 2007, with off-price and specialty retailers gaining share.
Here, too, Macy’s is fighting back. It bought the Bluemercury luxury beauty chain in 2015, and expanded it to 117 mostly freestanding boutiques from 60. Macy’s doesn’t break out Bluemercury sales.

Macy’s Backstage, which has 22 stores, is also growing. The unit could help combat rival discounters and perhaps expose a younger consumer to the Macy’s brand.
According to George W. Hebard III, a director of research at Barington Capital Group, another activist firm that owns Macy’s stock, the retailer needs faster execution and more exclusive brands to generate traffic. He’d also like to see Macy’s spend less on printed marketing materials and more online. Hebard calls the stock significantly undervalued.
Macy’s problems aren’t easy to fix, but the company has long been resilient. Its “right-sizing” could produce some worrisome headlines, but Macy’s growing emphasis on online sales, and its asset value, suggest that the stock is cheap.

Barron's : A Speculative Trade on Twitter’s Rise or Fall

A Speculative Trade on Twitter’s Rise or Fall
Here’s a strangle trade to capture both aspects of the struggling social-media companies’ plight. The risk: Twitter is a tired story.

Poor Twitter. The social media pioneer’s fate seemingly has been to see the future and to change how the world communicates, while never fully reaping the rewards of its own bold action.
Like some tortured mythological character, Twitter (ticker: TWTR) seems unable to rise like Facebook (FB) or Apple (APPL). Despite some progress monetizing mobile advertising, a Facebook strength, Twitter largely appears to be like a techno-version of an old Associated Press teleprinter that clacks out headlines. Investors seem to agree.
Last week, the stock fell sharply on weak earnings that aren’t even worth discussing, because they do little but confirm what’s already known. The company does, however, deserve credit for producing zippy shareholder letters with nice charts and other material that suggest Twitter’s investor-relations team should be tasked with redefining the Twitter user experience.
As regular readers know, we have long championed Twitter as a revolutionary medium. We were early to advise investors that Twitter was a valuable information source, where one could interact with experts from various fields. As the company began faltering in recent years, we detailed a few ideas—like using graphics so one could see ideas spread across the globe— that might have helped energize the business. We also suggested creating an Apple iTunes model for content.
While nothing much has materialized, Twitter’s weakness is provocative. Hence, we want to establish a highly speculative trade that could produce a profit if Twitter’s stock sinks or surges.
The risk to the trade is that Twitter is a tired story—and that’s dangerous for stocks. It isn’t clear what any company would get if it bought Twitter. Sure, there’s the technology, and the idea, but who can say if Twitter’s financials are sticky and able to grow. What if you buy Twitter, then find out—after trying to run it—that the problems are even more serious than understood?
With the shares at $16.38, buy Twitter’s January $18 call that expires in 2018 for $2.22, and buy the January $13 put for $1.18. The strangle pays off if the stock surges, say, because of a takeover or if financials trend higher. The strangle also pays off if Twitter is a “take under,” or the stock sinks because it’s hard to detail why anyone should own it.
The January 2018 expirations express a view that Rome was not built, nor was it burned, in a day.
AT VARIOUS TIMES, extreme market conditions inspire investors to ask about resources that will help them better understand options. So many of these emails have arrived recently, perhaps because of the stock market’s high level or the historically low level of options premiums, that it seems prudent to say in public what I’ve often relayed in private.
To learn more about options, first visit the Options Industry Council’s free Website, optionseducation.org. Read their materials, register for seminars. In an industry where charlatans suggest enormous profits are practically free for the taking, the Website is a reliable information source that reflects the focused, honest effort of the options industry to educate investors. If you still have questions, you can email the OIC at options@theocc.com (you can keep emailing me, too).
As for options books, start with Larry McMillan’s Options as a Strategic Investment and Sheldon Natenberg’s Options Volatility and Pricing. Also, study Interactive Brokers(IBKR) securities filings. The company’s founder, Thomas Peterffy, is an architect of the modern securities market. His business is affected by volatility and market conditions, and he offers master classes a few times a year for anyone who’s in the know.

BArron's : Shares of Norway’s Orkla Look Tempting

Shares of Norway’s Orkla Look Tempting
The undervalued consumer-products outfit is expanding, while looking for ways to trim costs.

Consumer products such as Gutta juices, Jacky yoghurts, and Bare Bra health foods—a group that includes Supergrot porridge—won’t ring many bells in Europe and the U.S. But they are among the top-selling brands in Scandinavia, parts of Eastern Europe, and the Baltics.
They belong to the Norwegian branded consumer-goods company Orkla (ticker: ORK.Norway), a highly acquisitive outfit that has been refocusing lately, disposing of noncore activities, and sinking cash into higher-margin businesses.
Daniel Adams, a senior investment analyst at British fund manager Psigma Investment Management, reckons that Orkla represents a great turnaround opportunity for investors, with a new management team looking to streamline the business. “It’s an attractively priced, growing company, with an extremely strong balance sheet and huge scope to rationalize operations, while paying a 3% yield while you wait,” he says.
Recent market pressure on consumer-staples shares has made the sector generally cheaper, giving Orkla an estimated price/earnings ratio for 2017 of around 16, Adams says. “The company is a strong franchise, operating as the No. 1 or No. 2 brands in the majority of their categories,” he adds. There is considerable opportunity to boost profitability, with Orkla’s gross profit margins currently around 38%. That compares with roughly 50% for sector heavyweights such as Danone(BN.France) and Nestlé(NESN.Switzerland).
Despite relatively low organic growth in some of its markets, Orkla has boosted earnings with a steady stream of bolt-on acquisitions, starting early last year with its takeover of Hamé, a leading branded food company in the Czech Republic and Slovakia. That doubled its revenue in central Europe.
Some deals pushed it deeper into more mature markets, including its 55 million-British-pound ($68.8 million) purchase of L.G. Harris, a do-it-yourself United Kingdom painting-tools supplier, which doubled the size of Orkla’s house-care business.
The Norwegian company also bought a 70% stake in Broer Bakkerijgrondstoffen, a manufacturer of almond paste, bakery ingredients, and ice-cream powder in the Netherlands. Broer primarily serves the Dutch business-to-business market, but also exports products to other countries, chiefly Belgium. It has sales and distribution companies in 22 countries.
That wasn’t Orkla’s first Dutch foray. In 2015, it expanded its ice-cream ingredients and accessories operations there by acquiring sales and distribution concerns Frusco and Briceland. Other deals were struck in Finland and Denmark, and Orkla has the firepower to continue its acquisitions this year.
Adams says that with net debt at two times earnings before interest, taxes, depreciation, and amortization, versus the company’s target of up to three times, it has plenty of scope for more selective mergers and acquisitions.
EVEN SO, INVESTORS knocked off about 5.6% of Orkla’s shares on Thursday. (The company has American depositary shares that trade over the counter in the U.S., under the symbol ORKLY.) Pretax profit jumped 42% in the fourth quarter, to 1.34 billion Norwegian kroner ($160 million), with operating profit at its core branded consumer-goods business up 5%. The improved earnings owed mainly to acquisitions and the Sapa joint venture it shares with Norsk Hydro (NHY.Norway)—an aluminum-products maker that it plans to sell.
Adams says the consumer-goods business was a bit weaker than expected, triggering profit-taking following the stock’s nearly 5% run-up ahead of the results. “There is also probably a bit of disappointment on the dividend, which looks a little conservative, but the long-term positive story remains unchanged,” he adds. Orkla declared a NOK2.60 dividend for 2016, up NOK0.10 from the year before.
Nordea analyst Anders Hagen has Orkla at Hold, with a NOK82 price target, giving it a relatively slim 8% upside. But, he says, “we see no reason to change our view that Orkla is progressing well in its transformation into a pure-play, local-branded consumer-goods behemoth with room to expand margins from internal improvements and increased focus on synergies.” Hagen reckons that the company will continue to make selective, smaller-scale acquisitions to expand its product portfolio, coupled with a strong focus on internal improvements. “The combination will lead to modest top-line growth with expanding margins, we believe,” he says.
Carnegie analyst Preben Rasch-Olsen is a little more bullish. He has the stock at Buy with a NOK87 target price, indicating upside of more than 13%. “Orkla is on a steady course to achieving 6% to 9% Ebitda growth per year through restructuring and cost-cutting, combined with revenue growth in line with the overall market,” he says, adding that plans to float its Sapa stake could generate cash of about NOK7 to NOK9 a share. The shares closed on Friday at NOK74.70.

BArrons : How to Invest With Ackman, Loeb, and Einhorn at a Discount

How to Invest With Ackman, Loeb, and Einhorn at a Discount
Publicly traded closed-end funds offer a chance to invest with high-profile hedge fund managers.

A pair of European-listed, closed-end funds offers individuals a cheap way to invest with prominent hedge-fund managers Bill Ackman and Daniel Loeb.
These closed-ends, Ackman’s Pershing Square Holdings (ticker: PSH.Netherlands) and Loeb’s Third Point Offshore Investors (TPOU.UK), both trade at sizable discounts to net asset value. They offer other advantages as well, including daily liquidity and no investment minimums.
The Pershing Square Holdings closed-end, which has net assets of $3.6 billion, trades actively in Amsterdam and more lightly on the Pink Sheets under the ticker PSHZF. At $15, the shares trade at a 16% discount to NAV.

The Third Point fund is smaller, at $700 million, and trades in London. Also recently $15, the shares are priced at a 14% discount to NAV. The fund also has very thinly traded Pink Sheet shares (TPNTF). The fund invests directly in Loeb’s Third Point Offshore hedge fund. “The Third Point fund offers exposure to a world-class money manager at a discount. What’s wrong with that?” says David Feinman, a private investor in Larchmont, N.Y., who has long invested with Loeb.
The two overseas funds can be purchased through many brokerage firms, including Fidelity, Merrill Lynch, and Interactive Brokers. Morgan Stanley, however, restricts purchases to high-net-worth clients because the funds aren’t registered in the U.S. Shareholders in taxable accounts receive a Passive Foreign Investment Company tax form.
THE BIG DISCOUNT ON THE PERSHING SQUARE fund is understandable, given its poor performance; it dropped a total of more than 30% in 2015 and 2016 when the Standard & Poor’s 500 index returned 13%. Ackman also has become a poster child for the hedge-fund industry’s performance and fee issues.
By contrast, Loeb has a great 20-year record during which Third Point’s returns doubled those of the S&P 500. But in the past two years, results have been mediocre. Third Point fell 2.6% in 2015 and rose 6.1% in 2016, trailing the S&P in both years.
Pershing Square is a bet on Ackman’s revival, while Third Point is a play on a return to its historically good performance.

Loeb and other hedge-fund managers are betting that President Trump’s policies will produce market volatility, which is good for nimble active managers. “We do not plan to trade the tweets, but we expect an increasing number of real, and even better, fake dislocations, to create some extremely rewarding investing opportunities,” Loeb wrote in an investment letter earlier this month.
He also notes that most investors “underestimate” the operating leverage of banks in a rising rate environment, both from wider lending spreads and better trading activity. Third Point, like many hedge funds, has a mix of longs and shorts, with a net exposure of 62% at the end of January. This ought to dampen volatility relative to the stock market.
ACKMAN HOLDS just 13 equity positions in the closed-end fund. Three stocks—Mondelez International (MDLZ), Air Products and Chemicals (APD), and Restaurant Brands International (QSR), parent of Burger King and doughnut chain Tim Hortons—account for nearly half the Pershing Square fund. Valeant Pharmaceuticals International(VRX), which torpedoed the fund in 2015-16, can’t do much more damage. After falling 95% from its 2015 high, it’s now just a 3% holding in the fund.
Loeb operates a fairly concentrated portfolio including Baxter International (BAX), Dow Chemical (DOW), Constellation Brands (STZ), and JPMorgan Chase (JPM). It also has significant bond exposure.
The Third Point closed-end offers individual investors a way around the hedge fund’s minimum investment of $10 million. Another way in is Third Point Reinsurance (TPRE), a Bermuda property and casualty reinsurer that went public in 2013. Its investment portfolio is run by Third Point. The reinsurer, now around $11.85, trades at a 13% discount to its third-quarter 2016 book value of $13.55. Fourth-quarter results haven’t yet been reported.
The closed-end fund charges a 2% management fee, plus 20% of profits, while the reinsurer gets lower fees of 1.5% and 20%. In all, Loeb runs more than $14 billion.
INVESTOR DAVID EINHORN of Greenlight Capital has run a similar reinsurer,Greenlight Capital Re (GLRE), since 2007. It trades around $23, a slight premium to its third-quarter book value of $22.
Both companies offer investors a tax-advantaged play on top managers; investment income is virtually untaxed in the tax havens where the two insurers are based. The managers, meanwhile, get more or less permanent capital to invest, which is nice given the risk to hedge funds of withdrawals in bad times.
Neither reinsurer, however, has been a big winner. Third Point trades below its initial public offering price of $12.50, and Greenlight Re is up just 20% in the 10 years since its IPO. Neither has ever paid a dividend. The culprit in both cases has been weak underwriting performance. This validates Warren Buffett’s observation that it’s easy taking in property and casualty insurance premiums but hard to turn a profit; his ownBerkshire Hathaway (BRK.A) has long been an exception.
Third Point Re, however, looks appealing given its discount to book value, the company’s intention to repurchase stock at 90% of book value, and good investment returns in January, when the closed-end fund gained 2.6%. The shares trade for about six times projected 2017 earnings of about $2, but that estimate is based on continued strong investment performance.
That said, Third Point Re suffers from an underwriting drag that isn’t present with the closed-end fund.
Indeed, analysts generally are lukewarm on the two reinsurers. “Third Point has a good investment and underwriting team but it’s very hard to get excited about any reinsurer now because it’s a difficult environment,” with pricing under pressure, says Meyer Shields, a KBW analyst who has a Market Perform rating and $14 price target on the shares.
Barron’s featured these investments nearly a year ago (“How to Buy Bill Ackman, Dan Loeb on the Cheap,” March 26, 2016). Since then, Third Point Offshore has returned almost 20%; Greenlight Re, Third Point Re, and Pershing Square Holdings, about 10%.
Pershing Square offers a plus. The fund is way below its peak level, or high-water mark, meaning that investors won’t pay an incentive fee unless the portfolio appreciates by 40%. Investors do have to pay the base annual management fee of 1.5%. Despite Ackman’s woes, he is still running $11 billion.
Investors also could benefit because Ackman is unhappy with the large discount on the closed-end fund, calling it “unacceptable” in a December investor letter. He went on to say that the fund is “exploring potential steps to narrow the discount to NAV.” No plan has been announced yet.
FOR TAX PURPOSES, overseas funds are treated like master limited partnerships. Investors are taxed on the funds’ ordinary income and capital gains whether they’re distributed or not. This assumes they choose “Qualified Election Status,” as most holders do, according to New York tax expert Robert Willens.
In an email, he wrote that as a “practical matter” there isn’t a big difference from a tax standpoint between U.S. mutual funds, which generate 1099 forms, and overseas funds. To retain their tax-favored status, U.S. mutual funds “distribute virtually all of their taxable income.”
There may be a place in investment portfolios for funds run by historically successful managers. The Pershing Square and Third Point closed-end funds offer an attractive way to get that exposure at a discounted price. The Third Point and Greenlight reinsurers offer a similar play for those wanting U.S.-listed shares.