Arbitrage Movie Trailer: Film About Hedge Fund Manager Played By Richard Gere

We're posting up the trailer from the upcoming movie Arbitrage.  Directed by Nicholas Jarecki, it stars Richard Gere, Susan Sarandon, Brit Marling, Tim Roth, and Nate Parker.  The trailer looks like it also features a cameo by CNBC's Maria Bartiromo.  The movie will be released on September 14th, 2012.

Gere plays a hedge fund manager who is desperate to sell his trading empire before the depth of his fraud is exposed, but he makes an error that forces him to turn to an unlikely person for help.

The trailer makes it look like the film is less about finance and more about a drama and homicide case.  The film's tagline is Arbitrage: Power is the Best Alibi.

Embedded below is the movie trailer for Arbitrage:



If you missed some of the financial films that came out last year, check out the Margin Call movie trailer, as well as the Confidence Game trailer.

Eton Park Reduces Airgas (ARG) Position

Eric Mindich's hedge fund firm Eton Park Capital has reduced its stake in Airgas (ARG). Due to an amended 13D filing with the SEC, Eton Park now shows a 4.92% ownership stake in ARG with 4,145,191 shares due to portfolio activity on March 29th.

This is a 31% reduction in their position size. Back in December 2010, Eton Park owned 7.15% of Airgas. The bulk of their recent sales came on February 16th and March 30th at weighted average prices of $63.0019 and $66.3244, respectively.

You'll recall that Airgas had in the past been subject to a takeover bid by Air Products (APD). Eton Park had supported the bid after APD raised its offer numerous times. However, Airgas did not seem receptive. For now, Eton Park still holds a position, albeit a smaller one than previous months.

Per Google Finance, Airgas is "a distributor of industrial, medical and specialty gases (delivered in packaged or cylinder form), and hardgoods, such as welding equipment and supplies."

John Paulson On The "Risk" In Risk Arbitrage

John Paulson catapulted to hedge fund fame during the financial crisis for his profitable bets against subprime. His exploits were even catalogued in the excellent book, The Greatest Trade Ever. Yet before all that, he paved his way on Wall Street in mergers & acquisitions.

In 1994, he started Paulson Partners and focused on arbitrage strategies. Today, Paulson & Co is the third largest hedge fund. This article traces Paulson's roots in order to learn about risk arbitrage from the manager himself.

It's little known that Paulson actually authored a chapter on the subject in the book, Managing Hedge Fund Risk compiled by Virginia Reynolds Parker. She is a graduate of Harvard Business School and founder of a firm that specializes in the design and management of fund of hedge funds.


The "Risk" in Risk Arbitrage

In the book, John Paulson writes that simply, "The 'risk' in risk arbitrage is therefore anything that affects the deal's completion, the timing of completion, or the amount of consideration received at completion."

His chapter on the subject begins by sharing advice from a risk arbitrage veteran with over 40 years of experience. This practitioner told him that, "risk arbitrage is not about making money, it's about not losing money." Given such prescient advice, it should come as no surprise that the "risk" in risk arbitrage is the key focus.

Paulson divides risk into two categories:

1. Macro Risks: Such as interest rates, exchange rates, commodity prices, and market volatility.

2. Micro Risks: Details pertinent to the specific transaction such as regulatory issues, financing, and earnings.

When looking at arbitrage opportunities, he lays out screening criteria in which he says to avoid the following: agreements in principle, deals subject to financing, targets with poor earnings, and deals in cyclical or highly regulated industries.

On the other side, he prefers to focus on: definitive agreements, large acquirers, deals with no financing conditions, reasonable valuations, and limited regulatory risk.

He concludes that, "Unfortunately, every deal has risk, so one cannot avoid risk entirely. Instead, one must prudently manage risk to produce a desired return with minimal drawdowns and low market correlation."

For an in-depth look at the strategy, embedded below is John Paulson's chapter from the book Managing Hedge Fund Risk:



You can download a .pdf copy here.

While Paulson got his start in merger arbitrage (and still today runs a fund pursuing that strategy), he has also ventured into new territory. His bets against subprime have been well documented. He's also bet on a US recovery via his aptly named Recovery Fund. His next big wager is a bet against the US dollar via his gold fund. And, in his year-end letter, he said he is recently also focusing on restructured equities.

Paulson & Co has evolved into an asset-gathering behemoth pursuing multiple strategies. But Paulson's roots stem from risk arbitrage and hopefully the above has been a useful look at this popular hedge fund strategy from a prominent manager himself.

For further insight from on hedge fund strategies from John Paulson and other managers, check out the book Managing Hedge Fund Risk. And for analysis of Paulson's latest investments, head to Hedge Fund Wisdom, our quarterly newsletter.

Eton Park Capital Supports Air Products' Latest Bid For Airgas

Eric Mindich's hedge fund firm Eton Park Capital Management recently filed an amended 13D with the SEC regarding their stake in Airgas (ARG). Per the updated disclosure, Eton Park shows ownership of 7.15% of Airgas with 6,014,200 shares. Their position remains unchanged as they held this amount of shares at the end of the third quarter. This has been a longstanding merger arbitrage play in their portfolio.

Today we continue 'merger arbitrage day' on MarketFolly.com as we examine some of the largest trades hedge funds have put on in recent quarters. Eton Park mainly filed their amended 13D to publicly voice support behind Air Products and Chemicals' (APD) latest offer for Airgas. Here's Eton Park's statement:

"To The Board of Directors of Airgas, Inc.: As you know, funds managed by Eton Park Capital Management own more than 6 million shares, or approximately 7.15% of the outstanding shares, of Airgas, Inc. We write to express our views to the Board of Directors with respect to Air Products and Chemicals, Inc.’s $70 per share offer to acquire Airgas.

Until now, we have refrained from public comment on either Air Products’ efforts to acquire Airgas or on Airgas’ efforts to defend against the bid. We generally do not oppose poison pills or staggered boards and believe that the Airgas board to date has served its shareholders well. Airgas’ defense has forced Air Products to raise its bid several times. But now, circumstances have changed. Air Products has raised its offer to $70 a share and stated that the offer is best and final. In our view, the $70 per share bid is fair, represents an appropriate price for control of Airgas and, accordingly, presents an opportunity and not a threat to Airgas or its shareholders.

We believe the Airgas board should now either allow shareholders to accept Air Products’ revised offer or establish a clearly defined process designed to achieve greater value through an alternative control transaction."

So, given the lengthy nature of this takeover saga, Eton Park feels that Air Products' latest offer is fair and are fully in support of it. It will be intriguing to see if other hedge funds also publicly voice their support of accepting this offer as this has been one of the larger merger arbitrage plays in hedge fund land. If some funds support the latest bid while others oppose it, things could get very dicey.

Shares of ARG are currently trading around $63, about 11% lower than APD's offer of $70 per share. Since this is an arbitrage trade, keep in mind that Eton Park has most likely hedged this play somehow, possibly by shorting APD shares. We'll have to see if Airgas' board agree with Eton Park and accept the latest bid. For other activity out of Eton Park, we also detailed an increase in their Lonrho (LONR) stake.

Per Google Finance, Airgas is "a distributor of industrial, medical and specialty gases (delivered in packaged or cylinder form), and hardgoods, such as welding equipment and supplies. Airgas is also a United States distributor of safety products, producer of nitrous oxide and dry ice, liquid carbon dioxide producer in the Southeast, and a distributor of process chemicals, refrigerants and ammonia products."

Stay tuned for one more merger arbitrage post this morning. In the mean time, check out our other hedge fund tracking here.

Hedge Fund Carlson Capital Goes Activist on Portec Rail Products (PRPX)

Hedge fund Carlson Capital has gone activist on Portec Rail Products (PRPX) via a 13D just filed with the SEC. Carlson has disclosed a 5.2% ownership stake in PRPX with 503,674 shares. This is not a new position for the hedge fund as they previously owned 403,949 shares as of the end of the third quarter. As such, Carlson has recently purchased 99,725 additional shares of Portec Rail Products. In recent months, Carlson has also gone activist on Phoenix Technologies (PTEC) amidst takeover bids as well.

Today is 'merger arbitrage day' on the site and so we're taking a look at three separate arbitrage trades that prominent hedge funds have put on. As detailed in Carlson's 13D filing, here's a timetable of events that have taken place regarding PRPX shares:

- February 16th, 2010: L.B. Foster (FSTR) commenced a tender offer to purchase all PRPX shares at a price of $11.80 per share with the offer expiring on December 15th.

- August 24th, 2010: Sentinel Capital Partners expressed interest in acquiring all of PRPX shares at a price of $11.75.

- December 7th, 2010: Sentinel again expresses interest in acquiring all shares, but this time with an increased offer of $13.00 per share.

- December 15th, 2010: Per a PR release, "The tender offer for all of the outstanding shares of Portec expired at 5:00 p.m., New York City time, on December 15, 2010. As of that time, the depositary for the offer advised that approximately 7.63 million shares, representing approximately 79.46% of Portec's outstanding shares, were validly tendered and not withdrawn in the offer."

And late yesterday afternoon, Carlson Capital filed its 13D on PRPX and acquired the shares "pursuant to investment strategies, including merger arbitrage and event driven strategies, because they believed that Shares reported herein, when purchased, represented an attractive investment opportunity."

Will Carlson Capital's new activist push shake things up? While Portec Rail Products received offers at $11.80 and then $13.00, shares currently trade around $11.90. It remains to be seen as to whether or not Carlson will push for the higher $13 per share offer so we'll watch this one as it develops. In the mean time, you can also check in on Carlson's other activist investments including Hot Topic (HOTT) as well as Phoenix Technologies (PTEC).

Per Google Finance, Portec Rail Products "manufactures, supplies and distributes a range of rail products, including rail joints, rail anchors, rail spikes, railway friction management products and systems, railway wayside data collection and data management systems, and freight car securement systems."

For all our hedge fund activity tracking, scroll through our coverage of SEC filings here. Stay tuned for two more merger arbitrage related posts later this morning.

Short Term Arbitrage Play: Rohm & Haas (ROH)

Todd Sullivan over at Value Plays has just posted up an excellent idea for a short-term arb play. He writes,

"Dow Chemical will purchase Rohm & Haas (ROH) for $78 a share and the deal will close in early 2009.

Berkshire Hathaway (BRK.A) is investing $3b in the deal and it is an all-cash transaction. Currently shares trade at $70 a share under the current credit environment. Purchasers of shares today will get a 10% 4 month return (30% annualized). Downside is minimal.

What could go wrong?
Kuwait, who is buying 1/2 Dow's commodity business for $9.5b could back out of the deal. That cash is being used for funding the ROH transaction. How likely is this? Well, when one considers that the newly formed JV is in the process of hiring personnel and setting up shop in Michigan, not very.

Berkshire could back out. Again, can anyone come up with a scenario when this has happened? Me either."

Overall, it looks like this could be a solid play in terms of risk/reward. Head over to Value Plays to read the rest of his post.