Buffett is Looking for Deals in the UK and Europe
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The U.S. stock rally continued in April topping off the best April return since 2009 while setting four record closing highs with three in a row at month end.
Despite political pressure to cut rates, ‘transitory’ below target inflation, and surging U.S. job growth, monetary policy remains on hold. The Fed’s dual mandate of maximum employment and stable prices is currently being met as the long-lived U.S. economic expansion and its reflective bull market rolls onward.
Global announced deals in April had a combined value of about $338 billion, the third highest in the last ten years, according to industry data. Total 2019 year to date M&A was $1.3 trillion compared to the record high of $1.6 trillion for the same period in 2018 when lots of mega merger-and-acquisition activity occurred. Takeovers of UK companies dropped sharply in April due to Brexit uncertainties.
On the M&A trail at the Berkshire Hathaway annual shareholders’ meeting in Omaha, Nebraska, Warren Buffett said “I would like to see Berkshire Hathaway better known in the UK and Europe…I would hope they would think of Berkshire more often when businesses are for sale…We’re hoping for a deal in the UK and or in Europe no matter how Brexit comes out.” Berkshire has been on the hunt for mega deals with its $100 billion plus in M&A cash…stay tuned.
Commenting on Berkshire’s flexibility to move quickly to commit on deals such as its April 30 controversial offer of $10 billion in financing for Occidental Petroleum’s proposed acquisition of Anadarko Petroleum, Mr. Buffett said “We’re very likely to get the call because we can do something that no other institution can do… If somebody wants a lot of certain money for a deal, they’ve seen I can get a call on a Friday afternoon, and Saturday they have a date with me, and Sunday it’s done.” BRK’s outsized Apple position may be a cash source. We see more deals globally on the horizon coupled with an election looming, corporates will likely become aggressive, and GAMCO’s risk arbitrage team will stand to take advantage of these opportunities and trends.
Column by Gabelli Funds, written by Michael Gabelli
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GAMCO MERGER ARBITRAGE
GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.
Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.
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GAMCO ALL CAP VALUE
The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.
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