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Why Tudor sold its position in Forest Laboratories?

Smita Nair

Tudor Investment starts new positions 3Q 2013 (Part 6 of 6)

(Continued from Part 5)

Paul Tudor Jones II in 1982 founded Tudor Investment Corporation, which is today a leading asset management firm headquartered in Greenwich, Connecticut. The Tudor Group, consisting of Tudor Investment Corporation and its affiliates, is involved in active trading, investing and research in assets across fixed income, currencies, equities and commodities asset classes and related derivative and other instruments in the global markets for an international clientele. Tudor has around $13.6 billion in assets under management. The investment strategies of the Tudor Group include, among others, discretionary global macro, quantitative global macro (managed futures), discretionary equity long/short, quantitative equity market neutral and growth equity.

It started positions in Apple Inc (AAPL), Beam Inc (BEAM), Infosys (INFY) and Intercontinental Exchange Inc (ICE). It sold Merck & Co (MRK) and Forest Laboratories Inc (FRX).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Why sell Forest Laboratories Inc (FRX)?
Tudor exited a 1.2% position in Forest Laboratories Inc in 3Q 2013.

On December 2, Forest Laboratories announced series of significant strategic actions to streamline operations and reduce costs, leverage its balance sheet by issuing new debt, and return cash to shareholders through a new share repurchase authorization and an accelerated share repurchase program. The plan to streamline operations is expected to reduce operating expenses by $500 million by the end of FY2016 relative to the FY2014 cost base. It said it plans to issue $1 billion in new long-term debt through an offering of 8-year senior unsecured fixed rate notes. The net proceeds from the offering will be used to fund share repurchases, bolt-on acquisitions and general corporate purposes. The board also authorized the repurchase of up to $1 billion of common stock. The company will be entering into a $400 million accelerated share repurchase program before the end of the calendar year. Following the accelerated share repurchase, the remaining $600 million available from the debt issuance will be prioritized toward accretive merger, acquisition and licensing opportunities.

It also announced that the company is acquiring exclusive rights in the United States for Saphris (asenapine) sublingual tablets, a treatment for adult patients with schizophrenia or acute bipolar mania, from Merck Sharp & Dohme B.V., a wholly owned subsidiary of Merck & Co., Inc. It said with Viibryd and the soon to be launched product, Fetzima, Saphris complements Forest Laboratories’ current position in psychiatry and gives it access to the important schizophrenia segment.

The company’s 2Q 2014 revenues rose 12.4% to $855.3 million, with net sales increasing 17.3% to $811.4 million. The increase in sales was driven by sales of the company’s next generation products which totaled $303.0 million, an increase of 49.9% compared with the second quarter of fiscal 2013. The sales for the Namenda franchise, used for the treatment of severe Alzheimers disease, increased $40.3 million or 11.0% compared with the second quarter of fiscal 2013. The company saw sales for Namenda declined 9.4% on a sequential basis in 1Q 2014. However, 2Q 2014 results were strong on the back of newly launched products.

The company said it expects that non-GAAP earnings per share for the fiscal year ending March 31, 2014 will be in the range of $0.95 to $1.15. Research and development spend is now expected to be approximately $800 million for the year. In June, the company appointed a representative of activist investor Carl Icahn as an independent member to its board. According to news reports, Icahn was also instrumental in planning the exit of Forest Laboratories’ longtime CEO, Howard Solomon and the selection of new CEO Brent Saunders. Icahn was earlier critical of the company’s management and initiated proxy fights after acquiring a 9% stake. He also felt the company was not well prepared to deal with the patent expirations of its highest selling drugs – the antidepressant Lexapro and Alzheimer’s treatment Namenda.

Analysts are currently bullish about the stock due to the proposed series of strategic actions and a strong product pipeline. Eli Lilly & Co (LLY), Teva Pharmaceutical Industries Ltd (TEVA), and Actavis plc (ACT) are some of its peers.

Born in Memphis, Tennessee, Jones then went to University of Virginia, earning an undergraduate degree in economics in 1976 as well as a welterweight boxing championship. He then went on to work for Eli Tullis, a successful cotton speculator at the New York Cotton Exchange. One of Jones’ earliest and major successes was predicting Black Monday in 1987, tripling his money during the event due to large short positions.

As of March 2013, founder Paul Tudor Jones II,  was estimated to have a net worth of USD 3.6 billion by Forbes Magazine and ranked as the 108th richest American and 376th richest in the world. With this financial success he founded the Robin Hood Foundation, a philanthropic organization mainly backed by hedge fund operators.

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