Hedge fund billionaire John Paulson is getting whacked on his hedge fund’s largest equity investment — biotech company Shire.
Shire plunged 23% in London.
Late Tuesday, Chicago-based pharmaceutical company AbbVie said it’s reconsidering its $US55 billion takeover bid of Ireland-based Shire, Reuters reported.
In the deal, the U.S. company would relocate to take advantage of a lower corporate tax rate. However, the U.S. government has been trying to clamp down to make it more difficult for companies to do these tax inversions.
Following the news, shares of Shire plunged 23%, or down 1,215.82 pence ($US19.35 USD), on the London Stock Exchange on Wednesday. U.S. listed shares of Shire were last down about 29%, or down about at about $US72.38.
According to regulatory data compiled by Bloomberg, Paulson last held 27,888,000 million shares of Shire, or a 4.7% stake, that’s trading on the London Stock Exchange. The data also shows that he last held about 3.36 million of the company’s ADR (American Depository Receipt) shares that trade in the U.S.
According to our calculations, he has suffered about $US782.8 million in paper losses on the investment today alone.
A Paulson spokesperson declined to comment on the fund’s P/L.
Regardless, Paulson still wants AbbVie to pursue its takeover of Shire. He owns 13 million shares of AbbVie.
“We believe this transaction creates enormous value for AbbVie shareholders. The combination is both strategic and accretive regardless of the tax considerations. As a large AbbVie shareholder we hope the Abbvie Board reaffirms its commitment to the transaction after its review,” the fund said in a statement emailed to Business Insider.
Merger arbitrage is Paulson’s main speciality.
Paulson & Co. manages $US22 billion in assets. Paulson has four main strategies (Merger, Credit, Advantage and Recovery). His Merger fund, which invests in merger-like situations, is the oldest and biggest with approximately $US10 billion in assets.
While the paper losses look dismal, Paulson’s merger fund is hedged.
According to a quarterly report that came out yesterday and was reviewed by Business Insider, Paulson explained how he uses sector based ETFs to hedge out market risks for the merger fund.
“While the risks in these investments are higher than the risks of announced deals, we attempt to mitigate the downside by choosing targets that trade at discounted valuations and that could rise even if no takeover occurs, as well as by either partially or fully hedging the market exposure by shorting sector ETFs and/or individual stocks against the longs. Although the risk is greater and the outcomes are less certain, the rewards can be high,” Paulson wrote.
Here’s today’s chart of Shire’s selloff.