Miller Tabak's Event-Driven Research Department focuses on a broad range of special situation opportunities in the US equity markets, including merger arbitrage, "value with a catalyst", deep value, and other valuation-based investment opportunities that are frequently found in holding companies and other complex corporate structures.
Our focus in merger arbitrage is two-fold. First, following the announcement of a transaction, we evaluate the arbitrage spread's annualized rate of return to determine if investors are being adequately compensated for potential deal-related risks, including:
- Antitrust issues
- Financing conditions
- Buyer's termination rights
- Liability for terminating a transaction
- Shareholder voting conditions
In addition, we also analyze a transaction from a broader industry perspective in which the companies operate. For example, we focus on the possibility of a counterbid within the context of another buyer's investment objectives, as well as analyze how transactions alter the M&A landscape in the sector.
"Value With a Catalyst"
In opportunities we identify as "value with a catalyst", our strategy focuses on major corporate events that change the valuation of company, but that has not yet been recognized by the broader market. These situations include:
- Sale of a company's division
These opportunities typically present themselves due to a lack of traditional sell-side coverage, or because many sell-side analysts wait until the transaction has been consummated before issuing formal coverage.
Our philosophy regarding "deep value" opportunities is based on the concept that stocks trading at a large discount to intrinsic value may be an attractive investment despite the lack of an identifiable near-term catalyst. Frequently, these types of investments are companies with large net cash positions that tend to attract activist investors who encourage these companies to rationalize the balance sheet, sell-off non-productive divisions or liquidate.
At Miller Tabak, we also focus on finding valuation-based anomalies in the market that are frequently found in holding company structures, such as stub trades. In a stub, a company's stock price is trading at a discount to fair value, and occasionally at a negative value, after subtracting the parent company's stake in another publicly traded entity. In the past, these types of opportunities have included Phillip Morris' stake in Kraft and 3Com's holdings in Palm.
Merger Arbitrage & Event-Driven Equity Analysis
Michael Broudo is a Senior Research Analyst for Miller Tabak's merger arbitrage and event-driven equity group. He has 9 years of event-driven equity experience as an analyst and portfolio manager for established hedge funds and investment banks. From 2006-2008, he was Managing Director for Cargill Financial Services' hedge fund, Black River Asset Management, where he managed the US portion of the firm's Global Equity Fund. From 2003-2006, he was a Senior Research Analyst for Jet Capital Management, a $500 million hedge fund, where he focused on event-driven and value opportunities in the global equity markets. From 2000-2002, he was Vice President for SG Cowen's proprietary trading group where he co-managed the firm's US event-driven equity strategies and the Barep Protea M&A Fund, a hedge fund that focused on global merger arbitrage opportunities.