Targeting merger arbitrage opportunities in Silverleaf Resorts, L-1 Identity Solutions – Fat Pitch Financials (NVS, SVLF, ID)

Author: George Silva, Fat Pitch Financials

Covestor model: Workouts

There was a modest amount of activity in the Workouts model in the month of April. As was mentioned in the April report, the remaining shares of the model’s position in The European Equity Fund (EEA) were sold on April 1, 2011.

The following week, the merger of Alcon into Novartis AG (NYSE: NVS) was completed. Therefore, the Alcon position in the Workouts model was cashed out on April 8, 2011.

On April 12th, I started a new position in Silverleaf Resorts Inc. (NASDAQ: SVLF) for the Workouts model and I subsequently added additional shares on April 13th. Silverleaf Resorts is being acquired by SL Resort Holdings, which is an affiliate of Cerberus Capital Management, L.P. Given the spread between the price of Silverleaf Resorts shares and the merger offer and the potential that this deal will close shortly, this appeared to be an attractive workout opportunity.

Then on April 18th and 19th, I threw in the towel on Harbin Electric Inc (NASDAQ: HRBN). Statements regarding the CEO’s offer for the company stopped making sense to me, so I decided to sell completely out of that position. While the model took a loss on that trade, the potential risk of a much greater loss made it prudent to act quickly.

I also started a new position in L-1 Identity Solutions Inc. (NYSE: ID) on April 21, 2011. Safran is offering to buy L-1 Identity Solutions for $12 per share. The spread and timeframe for this deal appeared attractive, so it was added to the Workouts model.

Finally, Novell’s merger was completed on April 27th. The Workouts model should be receiving $6.10 per share held as per the terms of the agreement. It was nice to complete another successful workout just as the month ended.