H&Q Life Sciences Investors (NYSE: HQL) is a diversified closed-end fund. The Fund’s investment objective is long-term capital appreciation through investment in the life sciences industry (including biotechnology, pharmaceutical, diagnostics, managed healthcare and medical equipment, hospitals, healthcare information technology and services, devices and supplies), agriculture and environmental management.
George Silva of Fat Pitch Financials manages Covestor’s Workouts model, which invests in special situations in which a corporate event sets the future value of a security. Such events include mergers, tender offers, going private transactions and liquidations. He recently added HQL to the model, so we asked George for some insight into his rationale for the investment. His response follows.
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The Fat Pitch Financials Workouts model started a new position in H&Q Life Sciences Investors on May 20th. I was first attracted to this closed-end fund when they announced on May 3rd that they were commencing a tender offer. HQL is offering to purchase for cash up to 35% of its outstanding shares at a price equal to 98% of its net asset value per share on the day immediately following the expiration of the tender offer.
The tender offer is scheduled to expire on May 31, 2011. Shares of HQL have been trading at a discount of between 5% and 7% since the tender offer was announced.
I tend to wait until about a week and a half to two weeks before a closed end tender offer is set to expire before purchasing shares in order to minimize market risk and to allow sufficient time for my broker to process my tender request. My plan is to tender this position at the end of the month and receive cash in early June.
While there is nothing too exciting about this HQL workout, it provides a fairly low risk way to potentially turn a quick profit. Ideally, there will be another tender offer started for another stock as this one is completed.
Sources:
“H&Q Life Sciences Investors Announces Approval of Declaration Amendment and Commencement of Cash Tender Offer” HQL Press Release. 5/3. https://www.sec.gov/Archives/edgar/data/884121/000110465911025167/a11-10974_8ex99d1.htm
