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The Morning Brief: Elliott Gets a Boost From Merger Rumors

Shares of Mitel Networks and Polycom Inc. surged Wednesday on unsubstantiated reports that the two companies are in merger talks. This was clearly good news for Paul Singer’s Elliott Management Corp., which is a major shareholder of both companies. Back in October, we reported that Elliott sent an 11-page letter to Polycom’s board urging the company to merge with Mitel, a suggestion it had already communicated to Mitel. Elliott also disclosed it had a passive investment in another industry competitor, ShoreTel. The three companies are what Elliott calls unified communications and collaboration vendors. Polycom makes video-conferencing equipment, while Mitel is a telecom provider. Shares of Mite1 closed at $7.28, up more than six percent over the previous day. Elliott is the second largest shareholder of Mitel with 9.6 percent of the shares and the third largest shareholder of Polycom with 6.6 percent of the shares.


Barington Capital Group chairman and CEO James Mitarotonda issued a press release praising Avon Products’ announcement earlier this week that the cosmetics company is cutting its headcount and moving its headquarters from New York to the United Kingdom.

“We are pleased that Avon is following our recommendation to reduce excess costs and corporate overhead,” the New York-based activist hedge fund manager said in a statement. “We believe that there is still much more that needs to be done to improve the business as outlined in our December 3 letter. We also continue to believe that Avon needs to add new independent directors that can help improve long-term value and ensure that shareholder interests are protected.”

Barington is leading an investor group, which includes NuOrion Partners AG, that collectively owns more than 3 percent of Avon. Barington Companies Equity Partners is one of the better-performing activists this year, posting a gain of slightly less than 1 percent through February.


Peabody Energy dropped 45 percent to $2.19 after the largest American coal miner warned it may file for bankruptcy. One potential big loser is Philippe Laffont’s Coatue Management, who reported being the ninth large shareholder as of year-end. Luckily, it was Coatue’s second smallest position.


Typical Wall Street. Stifel Nicolaus slashed its price target on Valeant Pharmaceuticals International from $200 to $65. Of course, the surgery took place Wednesday morning, after Valeant’s stock plunged 51 percent after the drug company cut its 2016 guidance and warned it may default on its debt.

“The significantly tempered outlook was in sharp contrast with any tangible metrics we had and prospects for its growth potential are still murky at best,” Stifel tells clients in a note. “Though we are in the midst of a ‘crisis of confidence’ and uncertainty could yield more downside in the near-term, the company is still left with strategic value.” Stifel estimates that Valeant’s break-up value is $65. The stock closed Wednesday mostly unchanged, at $33.54.

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