Third Point's Q1 Letter: Playing Merger Arb & Pro Forma Situations

Dan Loeb's Third Point is out with its first quarter letter.  In it, they talk about how hedge funds have seen a lot of carnage as of late.

Specifically, they see the decimation in merger arbitrage land as an opportunity, writing, "many of these combined businesses should compound in value thanks to the benefit of synergies, modest financial leverage, and strong or improved management teams that have a history of successful capital allocation."

Their letter outlines their thesis on the following plays:

- Dow / DuPont
- ABInBev / SAB Miller / Molson Coors
- Time Warner Cable / Charter Communications
- Chubb / ACE
- Danaher

Embedded below is Third Point's Q1 letter:

John Paulson Files 13D on MetroPCS, To Vote Against T-Mobile Merger

John Paulson's hedge fund Paulson & Co just filed a 13D with the SEC on shares of MetroPCS (PCS).  Per the filing, Paulson owns 9.9% of PCS with 36,300,000 shares.  The main purpose of the filing is to say that they sent a letter to PCS saying that they intend to vote against the merger with T-Mobile.

This marks an increase in their position size by around 14% since the end of 2012. The filing was made due to activity on February 28th.


Why Paulson Is Voting Against the Merger's Current Terms

In their SEC filing, Paulson outlines a few reasons as to why they don't like the current deal:

- Too much debt
- Interest rate too high
- Too much equity risk for MetroPCS shareholders
- Unfair equity split
- MetroPCS is performing better than T-Mobile
- PCS better off as a stand-alone company

Paulson believes "in the strategic merits of a transaction but are opposed to the current deal terms."  They would support the deal if the intercompany debt was reduced along with the interest rate.  They also noted they would consider a combination of debt reduction, added cash and/or a higher exchange ratio for PCS shareholders.  You can view Paulson's entire thoughts in their SEC filing here.