Billionaire Tom Sandell’s New M&A Plays

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Billionaire Tom Sandell launched Sandell Asset Management Corp. in 1998 after starting his career at Bear Stearns. In 2012, his UCITS fund was awarded the accolade of “Best Performing Risk Arbitrage Fund” by The Hedge Fund Journal. His superior risk-adjusted returns have pushed him into Forbes’ list of billionaires, placing him tenth out of the richest people in Sweden. We have analyzed his latest 13F listing, as we’ve found it’s possible to produce outperforming investment strategies based on some of the most popular small-cap names held by hedge fund managers (learn more here). Read on to see which stocks Sandell added to his portfolio in Q4 2012.

Sandell’s largest new position was also his top holding reported for the quarter, with over 21% of his fund’s assets dedicated to Compuware Corp. (NASDAQ: CPWR). The company has been testing the waters for buyout options after recently turning down Elliot Management’s $11/share cash offer (Elliot already has an 8.7% stake).  It has sought interest from well-known private equity names like TPG and Blackstone. The stock recently issued a beat on its latest earnings announcement in January and earned an upgrade from Noble Financial in the process. Billionaire Steven Cohen of SAC Capital Advisors owns almost 5 million shares of CPWR.

Comprising 8.7% of his portfolio, American Realty Capital Trust, Inc. (ARCT) was reported as a new holding in Sandell’s Q4 13F. The ticker is no longer in existence, as Realty Income Corp. (NYSE: O) bought out all of the outstanding shares in a transaction priced out at $2.95 billion. The deal closed earlier this year and saw the two REITs combine to form a company with a pro forma valuation of $11.4 billion. Assuming his share size has not changed, Sandell would currently be the owner of 657,000 shares of O given the exchange ratio of 0.2874. Christian Leone of Luxor Capital Group had a holding of 10.5 million shares, according to his latest 13F.

ARCT was not the only takeover target that Sandell reported adding in Q4 2012. Cymer, Inc. (NASDAQ: CYMI) received 8% of the fund’s opportunistic capital as well. The company, which is a supplier of light sources used in the photolithography process to manufacture semiconductors, announced in October of last year that it would be acquired by ASML Holding N.V. in a deal valued at $2.6 billion. While the transaction has yet to close, stakeholders recently approved the deal on Feb. 5. The stock has netted investors over 110% since the announcement. Farallon Capital, along with a slew of other hedge funds, bought CYMI in Q4 2012

Continuing the trend of purchasing buyout targets, Sandell devoted 6.2% of his portfolio to the Warnaco Group (WRC), which was acquired by PVH Corp. (NYSE: PVH) on Feb. 13. The clothing manufacturers combined operations are projected to boost PVH’s earnings by $0.35 per share in 2013. Additionally, the buyout saw WRC being removed from the S&P MidCap 400 and PVH being added to the S&P 500 as well. Once again, a large number of funds joined Sandell in purchasing WRC in the last quarter of 2012, including billionaire Israel Englander of Millennium Management.

Finally, NYSE Euronext, Inc. (NYSE: NYX) is Sandell’s last new position that we’ll cover, earning another 6% of his assets under management. The exchange operator has suffered in recent history, as diminishing trading volume is taking its toll, earning the company declining revenues and earnings year over year. That said, NYSE is intended to merge with IntercontinentalExchange Inc. (ICE) in a deal announced in December. The combined firm, although not expected to be finalized until the latter half of 2013, is already worrying some analysts, who believe the combined debt of the merged entity might be too burdensome. David Harding of Winton Capital Management added to his NYX position according to his latest 13F.

This article is written by Eric Winter and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool recommends NYSE Euronext. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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