Week Theory
Here's a theory: when someone publishes something on the internet, the universe rearranges itself immediately to make it untrue. Or, at least the universe rearranges itself to make whatever argument made look foolish. Lamplighter has discussed this idea before.
The other side of that theory is maybe also true. When something is not published on the internet, the odds of it staying true increase a lot. It’s a weak theory, but it lives in my head anyway.
Both these theories are tongue-in-cheek and very obviously not true. Our brains work to recognize patterns. Sometimes this is helpful. Sometimes not.
Here's an opportunity that Lamplighter didn't have time to write about before it was over.
Story Time
Last week, Lamplighter came around to the idea that a company being purchased, but trading below its deal price, one that had been on its radar for a while offered a decent investment opportunity.
Pfizer had been trying to buy cancer therapy company, Seagen since March. After announcing the deal, Seagen's shares traded well below the price Pfizer would pay.
The deal attracted regulator attention both in the US and in Europe. In the US, the case against the merger was creative, but always a stretch. The case in Europe stood a better chance of moving forward. Risk that one of these anti-merger campaigns would work, though, kept a lid on Seagen's price.
In October, the European Commission wrapped up its investigation and decided not to pursue anything more against the deal. Seagen shares jumped up on the win. But the gap between Seagen's market price and the deal price remained. Seagen's share price gave the US case better odds of success than seemed likely. Regulators had let similar deals through in the past. The setup was similar to Lamplighter's adventures in Horizon Therapeutics earlier this year.
While the difference between the deal price and the market price of Seagen's shares gave too much credit to the FTC's prospects to sink the deal, the difference was still only 7%. Who has time to spend on a deal that, at most, is going to produce a 7% return?
About Time
That’s a valid question. The important part, though, is time. Without the FTC filing an actual case against the deal — so far it had only asked for additional information — the deal looked ready to close in a few weeks' time.
A 7% return per year? Nothing to write home about.
A 7% return in a matter of weeks? That's an interesting place to park a few spare dollars, especially if there are other deals to string together with this one (there are!).
Putting money into deals that give you a 7% return every 8 weeks gives you about a 60% return for a full year. This one only took a week! That is something to write home about.
That annual result also assumes all the deals close and everything goes right. This doesn't always or ever happen, but if you can find opportunities with a beginning expected return of 60%, there's some room for setbacks.
Time — the lack of it — is the key that unlocks the opportunity. If you blink, you might miss it.
Time’s Up
On December 12, Pfizer announced that it settled with the FTC. It agreed to "donate" rights to some cancer therapies to secure the regulator's blessing. The deal closed on December 14. Lamplighter moved on to other situations. I will write about some of these and, almost certainly, the universe will rearrange itself to make something, maybe everything, go sideways.
Good investors usually think about the magic of compounding over long periods of time. And this is the right way to think about it. Every long timeframe, though, is made up of shorter ones. Both very long and very short timeframes tend to muddle investor thinking. Evaluating opportunities over the right one can uncover some gems, like Seagen.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.