17 Mile 2.0 Strategy Note 3

17 Mile 2.0

Strategy Note 3

July 26, 2017


MEDIA M&A

As anticipated, Media sector M&A appears to be in the early stages, as DISCK and VIAB are in talks with SNI. SNI reportedly wants at least 50% of the consideration in cash; but apparently VIAB is willing to make an all-cash offer. Based on the strong price action in SNI, odds favor a deal coming together, IMO.

As a DISCK holder I would strongly prefer a SNI/DISCK combo, given the management teams and international focus. The fact that VIAB is involved as a buyer is disturbing, as VIAB should be the entity under consideration for purchase by larger industry participants. During M&A talks price action can be a dubious measurement of where talks are headed, but from an outside perspective it must be taken into account. As such, VIAB’s price action juxtaposed to DISCK’s suggests VIAB has the upper hand. I very well could be wrong, but if VIAB comes out on top I do not believe the market will react well.

Due to the above, I have closed out the VIAB position. And to maintain discipline, I have reduced the SNI position a bit as well in the event deal talks fall apart. While there is the risk DISCK acquires SNI and VIAB sees a relief rally – with me not participating – I am now in an advantaged position to take advantage of any weakness in DISCK.

PORTFOLIO POSITIONING

In addition to the above-mentioned moves, I reduced the NRG position as well, resulting in the following portfolio exposure:

  • Longs: 66%
  • Net Cash: 35%
  • SPY Hedge: 75%

I suspect the S&P 500 has one more intra-day blow-off before topping out, into which I will put on the bulk of the remaining SPY hedge position.

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