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Why are M&A hedge funds gun shy? Blame AbbVie for killing its Shire deal

November 13, 2014
Life sciences
AbbVie can count this among the consequences of canceling its Shire buyout: Deal-focused hedge funds are losing investors.
 
The M&A event funds had been riding high, with last year as their best since 2010. But a spate of failed mergers–AbbVie and Shire’s in particular–has prompted investors to withdraw their funds, spurring hedge funds to be a bit more cautious.
 
A combination of low interest rates, weak global growth and cash-rich companies got the year off to a promising start. But as a result of AbbVie and Shire’s $55 billion collapse, and a handful of other no-go transactions, investors have pulled out $3.3 billion in the last two months alone, Reuters reports.
 
“The AbbVie-Shire break, in particular, has led to a far reaching de-risking exercise for many funds,” Pierre di Maria, head of event driven strategy at Cheyne Capital, told the news service. “Those funds have reduced their gross exposure to deals in order to lessen their overall risk and to be able to face any upcoming redemptions.”
 
In particular, managers are becoming more conscious of political risk and intervention–the kind that sunk the AbbVie-Shire transaction–in the M&A arena, Jeff Holland, a managing director at hedge fund investor Liongate Capital Management, told Reuters. The Abbott spinoff blamed stricter U.S. rules on tax inversion moves–the kind it hoped to complete after picking up Ireland-based Shire–for scuttling the deal.
 
And at least one hedge fund manager is thinking about striking back in the form of litigation, the New York Post reported last week. Billionaire Paul Singer, founder and CEO of Elliott Management, told investors in a letter that he was considering suing AbbVie for “making false and misleading statements about the transaction.”
 
But Singer’s Elliott didn’t even take that bad a blow compared with some of its peers. Hedge fund manager John Paulson, who socked £1.44 billion pounds into Shire shares in October, watched his Advantage fund lose 13.6% in October, one investor told Reuters. And the $1.4 billion Tyrus Capital Event Fund closed out that month down about 6.5% after Tyrus Capital bet on both Shire’s share price climbing and AbbVie’s sinking.
 
By Carly Helfand
 

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