Four workouts I’m pursuing – George Silva, Fat Pitch Financials (HII, HQL, APF)

Author: George Silva, Fat Pitch Financials

Covestor model: Workouts

Disclosures: Long HII, ID, HQL, APF

In May, the Fat Pitch Financials Workouts Model started off the month by selling out of Northrop Grumman Corporation (NYSE: NOC) on May 3. As you may recall from an earlier investment report, Northrop Grumman spun off their shipbuilding business, Huntington Ingalls Industries (NYSE: HII).  I decided to buy some additional shares of Huntington Ingalls on May 3rd and May 11th using some of the proceeds from the Northrop Grumman sale, based on the thesis that this spinoff is potentially undergoing some price pressure due to institutional selling.

On May 11, I also decided to add to my L-1 Identity Solutions Inc. (NYSE: ID) position.  As mentioned in last month’s report, Safran is offering to buy L-1 Identity Solutions for $12 per share. National security concerns have caused regulatory review delays with this deal. These delays have increased concern in the market, as reflected by the stock price fluctuations that occurred in mid-May. However, after careful review on the circumstances, I still believe that there is a high probability that this deal will be completed.

Shortly after the L-1 Identity Solutions purchase, we received some good news. The Silverleaf Resorts, Inc. (NASDAQ: SVLF) merger was completed.  We received $2.50 per share in cash on May 17, 2011.

Then on May 20, 2011 I bought a small position in H&Q Life Sciences Investors (NYSE: HQL).  This closed-end fund had been trading at a significant discount to its net asset value (NAV). The fund decided to conduct a tender offer which started on May 3, 2011 and expired on May 31, 2011 where they would purchase for cash up to 35% of outstanding shares of the fund for 98% of the NAV at the close of business on the day following the expiration of the offer. I decided to tender that position toward the end of the month.  The final outcome of that tender offer should be reported soon.

Finally, I also purchased a similar position in Morgan Stanley Asia-Pacific Fund Inc. (NYSE: APF) on May 23, 2011. That tender offer is for up to 25% of the closed-end fund’s outstanding shares.  Shares will be purchased for 98.5% of NAV on the business day following the expiration of the offer. The offer is currently slated to expire on June 9, 2011.  I’ll let you know how that deal does in next month’s investment report.