(Bloomberg) -- Millennium Management and Athos Capital Ltd. are among hedge funds that have lost money after the surprise collapse of a deal involving two of China’s drugmakers, people with knowledge of the matter said.
Izzy Englander’s Millennium had a 5.1% stake in China Traditional Chinese Medicine Holdings Co., which plunged 35% Monday after regulators didn’t approve a take-private offer from China National Pharmaceutical Group Co. Athos’s stake rose to as much as 5.3% earlier this week. Both firms have since trimmed their holdings.
Ed Cooper, a London-based senior portfolio manager specializing in trades involving corporate events, is one of the Millennium portfolio managers hurt by the selloff, people with knowledge of the matter said. A Millennium representative and Cooper declined to comment. An Athos representative declined to comment on portfolio positions.
China National Pharmaceutical, the state-backed company known as Sinopharm, didn’t receive the necessary approvals from Chinese regulators by Friday. As a result, the proposed bid for TCM lapsed, according to a joint statement to the Hong Kong exchange. Sinopharm is the largest shareholder in TCM, and abandoned a deal to buy out its smaller rival in 2022.
Bets on the latest high-profile deal were popular with hedge funds specializing in corporate events, at a time when lower interest rates are expected to make leveraged buyouts cheaper to finance. Buyers with ample cash have been seeking targets, whose stock valuations have fallen, for consolidation.
Wagers on TCM shares to rally to the offer price were “hugely popular with event-driven hedge funds,” said Jon Withaar, head of Asia special situations at Pictet Asset Management SP Pte. “The deal spread was relatively wide. People had this perception that it’s state-owned enterprises restructuring. So it had a high probability that it was going to complete.”
Monday’s plunge shaved an estimated HK$469 million ($60 million) off the value of Millennium’s holdings, based on Bloomberg calculations, using the average price that it paid for the latest batch of shares it bought on Sept. 24. The New York-based firm by then held 254.9 million TCM shares, before trimming its holdings to 246.2 million shares by Tuesday, according to filings to the Hong Kong exchange. Its stake has dipped below the 5% threshold requiring public disclosure of further changes.
Millennium last added nearly 4.65 million TCM shares on Sept. 24, one of the filings showed. The purchase prices of the rest of its TCM holdings or the exact amount of its loss on the trade is unknown.
Athos’s stake rose above the 5% mandatory disclosure threshold only on Monday. It trimmed it to just below 5% by Tuesday, according to the latest filing.
While the loss for Millennium — even if not hedged — would hardly make a dent for a firm that oversees nearly $70 billion, it could damage the prospects of individual portfolio managers with the position on their books.
Multi-manager, multi-strategy firms like Millennium typically set tight limits on the losses that each investment pod can incur before their positions are cut or the team is disbanded. The approach has helped churn out stable returns even amid market turbulence. It’s not unheard of for portfolio managers to leave even before they breach the limits.
Cooper was once a partner at Davidson Kempner Capital Management and managing director of its Asia business, according to LinkedIn. He joined Millennium in February 2020.
Athos’s flagship Asia event-driven hedge fund reported $753 million of gross assets in a March US regulatory filing.
October is shaping up as a challenging month for funds betting on corporate deals. A US federal judge blocked the planned $8.5 billion acquisition by Tapestry Inc., maker of Coach and Kate Spade handbags, of rival Capri Holdings Ltd. That sent Capri shares down as much as 56% in post-market trading on Thursday. Capri’s shareholders include the Who’s Who of hedge funds with teams focusing on merger-related trades.
©2024 Bloomberg L.P.