The Morning Brief: Paulson, Others Sell Shares in Extended Stay
Paulson & Co. has sold 4.25 million paired shares of Extended Stay America and ESH Hospitality for $14.76 each as part of a secondary offering completed by hotel operator Extended Stay behalf of several key investors. Under the deal the company repurchased 425,000 paired shares from Paulson for $14.76 apiece. The other sellers in the offering were Blackstone Group and Centerbridge Partners.
Extended Stay and its directors and officers didn’t sell any paired shares in the offering or receive any proceeds from it. The company and ESH Hospitality, a real estate investment trust that owns its properties, are jointly listed on the New York Stock Exchange as a paired share. In July 2010, Paulson, Blackstone, and Centerbridge shelled out nearly $4 billion to acquire Extended Stay, which filed for Chapter 11 bankruptcy protection in June 2009. Several Paulson funds posted huge gains when Extended Stay went public in 2013. However, the stock is down more than 40 percent since February 2014; it closed at $15.67 on November 23.
Wynnefield Capital Management has bought about 5 million shares of Summer Infant. The New York activist, a specialist in microcap businesses, now owns 28.1 percent of the company’s stock. Summer Infant, a maker of products for babies and juveniles, has a roughly $37 million market capitalization.
Separately, the hedge fund firm headed by Nelson Obus said it has purchased more than 36,000 shares of MusclePharm Corp., boosting its stake to 8.6 percent. The company, which has a $29 million market cap, describes itself as a scientifically driven, performance lifestyle sports nutrition company.
In a regulatory filing, Wynnefield expressed its approval of the company’s current strategic direction under executive chairman and interim CEO Ryan Drexler. “We applaud Ryan Drexler for his success in carrying out a complete overhaul of MusclePharm’s business plan and removing executives who made investment in the company a money-losing proposition for so long a period,” said Obus, president of Wynnefield, in a statement contained in the filing. “By jettisoning a series of absurd licensing agreements that threatened MusclePharm’s survival, and other beneficial changes, the company is now approaching a positive free cash flow position. While this significant turnaround came at the steep cost of share dilution, we believe that the improvement in MusclePharm’s prospects creates a real opportunity for all shareholders to benefit in the future from Mr. Drexler’s value creation skills.”
Obus founded Wynnefield in 1991. The firm’s Wynnefield Partners Small Cap Value fund, which has about $140 million under management, was up 9.4 percent for the year through October. The $87 million Wynnefield Partners Small Cap Value fund gained 9.5 percent during the same period.
Robert Karr’s Joho Capital has raised its stake in GrubHub to 4.37 million shares, from more than 3.4 million at the end of September. The New York firm now owns 5.1 percent of the online food delivery company. Karr, a global investor known for his big emphasis on Asian securities, manages $508 million in U.S. long equities. As we reported at the time, in January 2014 the Tiger Cub, whose firm has roots to Julian Robertson Jr.’s Tiger Management Corp., announced plans to shut down his hedge funds and return client capital. Back then Joho had a total of $4.9 billion in its long-short hedge funds and another $243 million in long-only funds.
UBS raised its price target on hedge fund favorite Dollar Tree from $90 to $100 after recently released third-quarter results “eased a number of fears.” The Swiss investment bank also told clients in a note that the discount retailer is starting to show benefits from its 2015 merger with Family Dollar.
At the end of the third quarter, 17 percent of Dollar Tree’s market capitalization was held by hedge funds, 15 of which included the stock among their top ten holdings, according to Goldman Sachs Group’s analysis of recent 13F filings. Dollar Tree is the second-largest U. S. long of Lone Pine Capital, which is also the company’s No. 2 shareholder. Its stock price barely moved last Wednesday, closing at $88.86.
Shares of hedge fund favorite Valeant Pharmaceuticals International fell 5 percent on November 23, to $16.94.