Merger Monday Comes to my Portfolio

Turned on Bloomberg radio this morning to some decent news.  Gramercy Property Trust (“GPT”) caught a takeover bid from BlackRock at $27.50 per unit.  As I mentioned before, I recently took a position in GPT.  Also, there was a development late last week that might have yielded some additional “tea leaves” concerning Conagra (“CAG”) and Pinnacle Foods (“PF”).

GPT

First, GPT caught a bid for $27.50.  My cost basis is about $24.60 so that is better than a sharp stick in the eye, but I had flagged ~$29 as an area to check-in and see if I wanted to continue to HODL.  This was the price at which GPT valued its units in a few private transactions (i.e., buildings bought with units) over the last year or so (btw, those sellers are probably miffed and maybe suing, don’t you think?)

Anyway, that puts me up about 12% (not counting one dividend of about 2%) in a quarter.  So a pretty, pretty, pretty good…CAGR, but I’m kind of annoyed to get taken out at a little bit of a cheap price.  I mean management was wailing about how cheap the stock was on the last conference call and now they sell out at like 15% premium?  I note that the stock flew up to the deal price of $27.50 today, perhaps implying the market thinks the price moves up.

You may know that GPT is largely and industrial portfolio REIT.  Prologis bought out DDT recently, so the area may be a little hot.  I guess I will sit tight and see what happens for a bit.  I need to check out the break-up fee on the deal (and or other terms as I’m able) to try and discount the likelihood of a competing bid.  Inactivity is the friend of the investor and all that.

I suppose the big picture takeaway is some additional support for the thesis that public real estate is cheap compared to private transactions (and maybe in an absolute sense) so we are seeing some arbitrage/transactions.  So we’ve got BAM and BK taking REITs out for cash in the last month (ok BAM gave sellers the option of taking cash).  Those two shops are pretty ok real estate investors, historically.  Seems maybe we are fishing in a decent pond.

CAG

I have posted about CAG before a few times:  Investing Diary: CAG Update,  Conagra Brands Update, and Conagra and Pinnacle Foods.  On Friday, May 4, before the open, CAG filed an 8-K announcing that they terminated the cooperation agreement with Jana partners, effective May 2nd.  I read articles taking this to mean both that a bid for PF was more likely because now Jana could vote PF shares in favor of transaction and that it was less likely because Jana was breaking off from CAG.

I went back and read the original cooperation agreement and it was seemingly a pretty standard standstill arrangement whereby Jana agreed to vote its shares in accord with management recommendations and freeze accumulation of shares (standstill) in return for some board slots, but it seemed to except extraordinary transactions from the voting pledge.  Jana still seems to have its people on the CAG board.

In the end, I guess it allows Jana more freedom to talk publicly and to make additional purchases of CAG stock to effect the transaction if it so desires.  This Reuters article is a good take.  Anyways, the CAG stock has been moving up pretty smartly the last couple of days (~5%).

I am fighting the urge to sell my CAG and move into MDLZ or KHC, which I regard as having better brands.  I’m up like 18% in 6 months on the position.  I am not sure what I will do, but I’m going to try and take it slow.  I wanted to sell Hillshire when they announced the Pinnacle deal back several years ago and my sloth resulted in catching a big buyout premium after a Tyson/JBS bidding war.

So it has been a fairly eventful couple of days with some positions.  I suppose the market is throwing up some opportunities, though they could be opportunities to do something dumb.  I guess if I go back to the basics neither one is substantially beyond what I would approximate as fair value, so I should probably “sit on my ass.”

If anyone has any insights to share in the comments, I would be interested to read them.

Thanks for reading.