No matter how slim the margin, Mario Gabelli isn’t someone to let a potential profit slip away.
Gabelli, the chief investment officer, CEO and founder of Gamco Investors Inc. (NYSE:GBL) and a longtime advocate of value investing, recently put up over $200 million to squeeze out the last bit of profit possible from owning Millipore Corp. (NYSE:MIL) stock.
Millipore shares have been trading between $105 and $106 each ever since the Billerica, Mass.-based manufacturer agreed Feb. 28 to be acquired by Merck KGaA for $107 a share. That leaves little upside potential for would-be investors in Millipore stock, unless they have the kind of money that Gabelli and Gamco can easily throw around.
Various investment vehicles managed by Gamco — along with a hefty side bet by Gabelli himself — combined to pay $209.8 million to acquire slightly more than 2.85 million Millipore shares, according to stock ownership documents filed this week. The purchases give the Rye, N.Y.-based investment company a 5.08-percent ownership stake and likely makes Gamco the sixth-largest institutional holder of Millipore stock.
Simple math would indicate Gamco and Gabelli bought in with an average price of $73.50 a share, yielding net proceeds of over $95.6 million, or $33.5 a share, assuming Merck’s $7.2-billion merger bid goes through later this year. A closer examination of the ownership filing, however, shows that the firm picked up more than 1.5 million shares at the post-announcement price of around $105 each, portending a far more modest gain of about $2.2 million on those particular purchases.
For example, using his own personal funds, Gabelli purchased 110,000 Millipore shares for roughly $11.6 million, or $105.76 a share. That should produce a net gain of $136,400 — a healthy profit for many investors, but working out to less than a 1.2 percent rate of return on his rather sizable eight-figure investment.
Still, with six-month Treasuries yielding a meager $25 or so for every $1,000 invested, buying Millipore stock, even at premium prices, makes for a relatively profitable alternative to park some cash while waiting for the deal to close. Gamco, which operates the Gabelli Funds family of mutual funds in addition to providing client investment services, long ago diversified its approach beyond a strict “buy low, sell high” strategy and now runs numerous limited partnerships and offshore investment companies offering long/short, arbitrage and industry-specific tactics, among others, for clients.
The April 13 ownership filing did not specify when Gamco and its affiliates bought shares, although securities rules typically require institutional investors to report they control more than 5 percent of a company’s stock within 10 days of crossing that threshold. Gamco Asset Management Inc. — which provides managed account services for employee benefit plans, endowments, foundations and individuals — holds the largest bloc of shares among the Gabelli-related entities, paying $73.8 million to acquire 1.56 million shares on behalf of its clients.
With those shares set to be worth $167.2 million once the merger closes, Gamco Asset Management clients are set to receive a 126 percent rate of return on their Millipore investments. The averaged price of $47.24 per share indicates Gamco likely started buying just as Millipore stock was reaching its nadir, below $50 per share in November and December 2008.
According to the recent filing, Gamco decided to aggregate all of its ownership of Millipore stock with client holdings to assist a handful of individuals who may have otherwise needed to publicly report their positions. This could have included clients who owned more than 560,000 Millipore shares, topping the 1 percent limit for non-disclosure, or individuals whose investment strategies occasionally includes activities that may be “viewed as not completely passive,” it said.