Paulson & Co Updates CNO Financial Group Position

John Paulson's hedge fund firm Paulson & Co has filed an amended 13D with the SEC regarding shares of CNO Financial Group (CNO).  Per the filing, Paulson now owns 4.7% of the company with just over 10.55 million shares.

This marks a slight decrease of 1.9 million shares in their aggregate common stock exposure since the end of the first quarter.  The filing was made due to activity on June 26th.  Their position includes 5 million shares issuable upon exercise of Warrants.

We covered Paulson's original 13D on CNO in 2009.

Per Google Finance, CNO Financial Group is "a holding company for a group of insurance companies operating throughout the United States, which develops, markets and administers health insurance, annuity, individual life insurance and other insurance products. The Company sells its products through three distribution channels: career agents, independent producers (some of whom sell one or more of its product lines exclusively) and direct marketing. The Company’s operating segments include Bankers Life, Washington National and Colonial Penn, which are defined on the basis of product distribution; Other CNO Business, and corporate operations, consisted of holding company activities and noninsurance company businesses."

You can view additional recent portfolio activity from Paulson here.

John Paulson Files 13D On Conseco (CNO)

As we detailed in a previous post, hedge fund Paulson & Co has taken a stake in Conseco (CNO). John Paulson's firm just recently filed a 13D with the SEC on shares of CNO and we now get more details regarding his position. A 13D signifies an activist investment in a company so it will be interesting to see what happens here. As per the filing, Paulson now shows a 20,000,000 share stake, representing 9.9% ownership. On November 13th, 2009 Paulson & Co acquired 16,400,000 shares of common stock and warrants to purchase 5,000,000 shares at an exercise price of $6.50 per share, well above the current share price of around $5.

As we detailed previously, this arrangement was originally agreed upon back on October 13th and so one month later it has now been executed. The bulk of his shares are in the Paulson Recovery Master Fund and the Paulson Advantage Plus Master Fund. What's interesting about their warrants is that they will not be exercisable (except under limited circumstances) until June 30th, 2013. So, shares of CNO certainly have plenty of years to ascend from their current levels to $6.50 or above. The exercise date of 2013 is notable in order to preserve deferred tax assets.

Overall, the 13D filing is quite lengthy as they've attached a whopping 9 exhibits to it. In sorting through them all, we also see that under the terms of their forward purchase agreement, Paulson's Opportunity Master Fund and Recovery Master Fund, "agreed to purchase from Morgan Stanley up to $100,000,000 aggregate principal amount of the 7.0% Convertible Senior Notes due 2016 of the Issuer." For purposes of this 13D, the SEC does not consider the underlying shares of these notes to be beneficially owned yet. On June 30th, 2013, these notes will be convertible into shares of common stock based on a conversion rate of 182.1494 shares per $1,000 principal amount of Convertible Notes. This is equivalent to a conversion price of $5.49 per share. Those of you who wish to read the entire SEC filing can head here.

In the end, Paulson's built a nice longer term wager on Conseco (CNO) here as he has numerous years for the stock price to climb to levels above his execution prices on all of his notes and warrants. While we already knew of his position, we now have more clarity regarding how it is broken down. This certainly sticks with his meme of 'betting on a rebound' as he bought financials and started a real estate recovery fund. It will be interesting to see if he can time the upside recovery just as he did the downside with impeccable precision. His wager on the recovery though will technically not need as much pinpoint precision in terms of timing. He merely just needs to hold on to investments long enough for the recovery to occur. And, as evidenced by this position in CNO, he is banking on things turning around before 2013. And while he may be wagering on an economic recovery over time, he is certainly still bearish on one thing: the US dollar. Paulson has assembled a massive gold position to effectively hedge against what he thinks will be the dollar's continued devaluation.

One of Paulson's other recent big bets is on Cadbury (CBY). He has been betting on a takeover and has appropriately doubled down on his stake as he anticipates higher bids. Hedge fund Paulson & Co is of course famous for their bet against subprime which made them billions. For more on John Paulson and his hedge fund, we highly recommend checking out WSJ columnist Gregory Zuckerman's new book, The Greatest Trade Ever, where he had exclusive access to Paulson in order to pen the story behind his victorious subprime bet. And reportedly, Paulson is not necessarily happy with how the book turned out. You can read our book review here.

We'll be tracking Paulson & Co very shortly in a separate post as part of our hedge fund portfolio tracking series so stay tuned.

Taken from Google Finance, Conseco is "the holding company for a group of insurance companies operating throughout the United States that develops, markets and administers supplemental health insurance, annuity, individual life insurance and other insurance products. The Company focuses on serving the senior and middle-income markets. CNO sells its products through three distribution channels: career agents, professional independent producers (some of whom sell one or more of its product lines) and direct marketing."

John Paulson's Latest Bet: Doubling Down On Cadbury (CBY)

John Paulson's hedge fund Paulson & Co has doubled down on their Cadbury (CBY) stake. According to UK disclosures, Paulson emphatically boosted his stake in Cadbury to 2.1% of the company as he purchased 14.8 million shares at a price of 759.59 pence each in the UK market and he now owns a total of 28.5 million shares. This means he bought 112 million pounds sterling (or $187 million) worth of shares. Cadbury of course was the recent subject of a bid from Kraft Foods (KFT) to take over the company. Paulson seems to be wagering that not only will a buyout happen, but it will come at a higher bid. Kraft's stock and cash offer was for 720p while Cadbury was trading around 763p. Needless to say, it appears many besides Paulson think that given Cadbury's rejection of the initial bid, a higher bid is inevitable. We note that Paulson & Co is not the only prominent hedge fund in this play as Eric Mindich's Eton Park Capital had been buying shares in September for 800 pence each.

While hedge fund Paulson & Co has been thrust into the spotlight over the past 2 years for their bet against subprime or their more recent big gold purchase, many seem to forget or overlook the fact that Paulson's equity strategy involves merger arbitrage and this type of play is right up his alley. While we cannot verify that Paulson & Co specifically has done this, it would be pretty safe to assume that like most funds pursuing this trade, he would go long Cadbury and then short Kraft. And, as FTAlphaville points out, "the short base in Kraft - a measure of how much of its total share pool is on loan - has risen by 45 per cent in the past week. Meanwhile, utilisation - the amount of stock available to borrow that has actually been borrowed - now stands at 4.2 per cent." Clearly, the merger-arb players are out in full force.

Interestingly enough, 1.49% of Paulson's ownership stake in Cadbury is represented by securities, while 0.59% of their ownership stake is represented by derivatives, and in particular, CFD's (contract for difference). We've previously examined what CFDs are as it is unique to the UK and hedge funds often use this derivative to help establish a position in a company. This primer of course goes right along with our introduction on how to track a hedge fund's UK positions. We're expanding our portfolio tracking coverage to include stakes held in other markets and many prominent hedge funds often hold positions in UK based companies. To see what some of the largest hedge funds are buying and selling in the UK, head to our most recent post covering Moore Capital Management, Louis Bacon's hedge fund firm.

In other notable activity, Paulson also recently invested $77.9 million in insurer Conseco (CNO). This purchase comes from 16.4 million common shares as well as warrants to purchase 5 million additional shares in a new offering that was announced October 14th that will dilute current shareholders. This gives Paulson & Co a 9.9% stake in the company.

So now we wait to see if Paulson can get that higher bid he is hoping for in his most recent play. For more on John Paulson and his hedge fund, we highly recommend checking out WSJ columnist Gregory Zuckerman's new book, The Greatest Trade Ever, where he had exclusive access to Paulson in order to pen the story behind his victorious subprime bet. And reportedly, Paulson is not necessarily happy with how the book turned out. You can read our book review here.

Taken from Google Finance,

Cadbury plc "formerly Cadbury Schweppes plc is a confectionery company. The Company is engaged in the confectionery business, with participation across the three categories of chocolate, gum and candy. The Company’s seven business units are Britain and Ireland, Middle East and Africa, North America, South America, Europe, Asia, and Pacific. Cadbury plc has developed a global portfolio of brands. The Company’s brands in chocolate are Cadbury Dairy Milk, Creme Egg, Flake, and Green & Black’s. Trident is the Company’s gum brand. Other gum brands include Hollywood, Stimorol, Dentyne, Clorets and Bubbaloo. Halls is a candy brand of the Company. Other brands are Maynards, The Natural Confectionery Co. and Cadbury Eclairs. On May 7, 2008, it completed the demerger of the Americas Beverages business, which became Dr Pepper Snapple Group, Inc. (DPS) following the demerger."