Archive for May, 2017

Miles said:

The Narrative

The fund currently owns investments in Akzo Nobel N.V. and Whole Foods Markets Inc.  We have detailed our thesis around both investments previously. There are obvious risks and these are not insignificant; but we regard these risks as worth taking in the fund because if our view proves correct, the equity value of both businesses will appreciate multiple times over the next decade.

The current corporate activity around both businesses has caused strong recent appreciation of their share prices. It has also generated a lot of media narrative that is critical of the director’s of both businesses. In these two instances, we regard the narrative as being generally opportunistic and misplaced. This narrative has real economic consequences.

The longer term upside we perceive there to be in both investments is largely subjective and is hard to defend. Director’s may hold similar views to us about the opportunity, but they are exposing themselves by rebuffing the current corporate interest because of the subjectivity of these views.

We suspect the suitors also hold similar views about the longer term opportunity. Their objectives are to use the narrative to force the directors to the table and entice and cajole a majority of shareholders into accepting the short term gain. 

Ultimately, the owners of the businesses need to decide. We are hopeful that there are enough of them that hold a view similar to ours, that it is rational in these two cases to take the risk and uncertainty of a longer term investment horizon, for the potential rewards.


Wednesday, May 3rd, 2017

Yes or no?