Covestor model manager Fat Pitch Financials focuses on special situation stocks and is a value investor. George Silva runs the company and is an economist who did his undergraduate degree at Cornell University and his Masters at Yale University. George has twenty years of experience investing in individual stocks. Fat Pitch Financials runs Covestor’s Workouts model and on April 8th exited a position in Alcon Inc (NYSE: ACL), a research and development global medical specialty company focused on eye care.
We asked George to provide some insight into his reasons for selling. His response:
The Fat Pitch Financials Workouts Model sold its position of Alcon Inc. on Friday, April 8, 2011. The reason for this sale was exceedingly simple – the stock price appreciated more than what I originally planned on getting for this workout opportunity. I only planned to get $168 per share, so when the price of Alcon shares exceeded $170, I knew it was time to sell.
I bought Alcon back on January 28, 2011 for $163.02 per share. I had discovered through press releases and SEC filings that Novartis AG (NYSE: NVS) was planning to buyout Alcon. Novartis AG upped its offer for Alcon back in December 2010 by offering 2.8 Novartis shares for each share of Alcon. In addition, Novartis agreed to top off the stock offer with cash if necessary to ensure Alcon shareholders receive a minimum of $168 per share when the merger is completed. I sold half my position for $165.45 on February 23 to raise some cash. That earned the portfolio a return of just under 1.5% in less than a month. While that was a rather nice return, I would have preferred to gain the 4.3% return I got for selling at $170.09 in just over 2 months.
While I could have waited for the merger to go to completion, there was no expectation that I would get more than a bit more than $168 per share. On April 7th, Alcon announced that its shareholders approved the merger with Novartis. The company also noted that Alcon shareholders would receive 2.9228 Novartis shares plus a cash payment of $8.20 for each Alcon share. I did not want to have the market risk of owning Novartis shares after the merger was completed, so I was more than willing to sell at $170.09, given that the potential value of the merger payout at the close of the market on April 7th was approximately $170.70.
My past experience has trained me to avoid trying to get the last few potential pennies when there is still the potential for delays and market risk. By the way, at the market close on April 8th, the value of the merger payout was only approximately $169.83.
Sources:
“Novartis Announces Option Exercise and Merger Proposal” Alcon, Inc Press Release, 1/4/10. http://invest.alconinc.com/phoenix.zhtml?c=130946&p=irol-newsArchiveArticle&ID=1370078&highlight=
“Alcon Shareholders Approve Merger with Novartis” Alcon, Inc Press Release, 4/7. https://www.businesswire.com/news/home/20110407006653/en/Alcon-Shareholders-Approve-Merger-Novartis
