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Circle Of Competence Issue #25

Quote of the week: "Mimicking the herd invites regression to the mean." Charlie Munger


This week I wanted to update on a couple of interesting activist positions I have been following as well as a new Icahn proxy fight with Cigna.

Sandridge Energy

First, an update on Icahn's Sandridge Energy position. Back in June & July, Icahn waged a successful proxy fight against Sandridge at its annual meeting, gaining enough seats on the board to push for an acceleration of its strategic review and potential sale of the company. Fast forward to this week, and it seems that Midstates is in talks to buy some of the company's assets (Yahoo Finance). This could result in significant portions of assets on the books being realized for shareholders at market values above what the stock price currently suggests they are worth. Midstates made a stock-for-stock bid for Sandridge's business, which was rejected earlier this year. For a more thorough understanding of the entire saga, I have linked to Icahn's letters/presentations in chronological order:

Letter 1: open letter to shareholders

Presentation on Sandridge

Letter 2: open letter to shareholders

Letter 3: open letter to shareholders

Letter 4: statement regarding Sandridge Energy

Letter 5: open letter to shareholders

Letter 6: open letter to Sandridge Energy Board of Directors

Letter 7: open letter to shareholders

Letter 8: open letter to shareholders

Letter 9: open letter to shareholders

Letter 10: open letter to shareholders

Letter 11: open letter to shareholders

Cigna - Express Scripts Merger

Second, Carl Icahn's newest activist battle, striking down the Cigna - Express Scripts merger, was put to bed this week after ISS/Glass Lewis recommended shareholders vote "YES" for the merger.

His original letters to the company explain his position and reasons for voting against the merger:

- Opening letter

- Follow up letter

Love him or hate him, you have to admit - Icahn wields the pen with superb skill and it is on full display in these two letters. In his letters on Cigna, though admittedly I am no expert in the pharmaceuticals market, I do see the merits in his two main arguments against a purchase price of $60B for Express Scripts:

1. There is a lot of bipartisan support for legislation that will help lower prescription drug prices for the every day American.

2. The Amazon threat is not only possible but probably inevitable given the recent announcement of its intent to acquire the online pharmacy, PillPack.

Taken together, these challenges could result in billions of dollars of Cigna shareholder capital being thrown into a deal that produces very little in return. This will be an interesting story to follow as legislation and competitive forces play out over time.

Contango Oil & Gas

Finally, I wrote fairly extensively about Contango Oil & Gas adopting what seemed like a poison pill in edition 23. Well, this week, with little coverage or warning, Contango Oil & Gas filed an 8-k, giving notice that the CEO would be stepping down and that John Goff and his young associate, Wilkie Colyer (age 33, CFA, and B.A. Economics from UT Austin) would join the board of directors. In addition to joining the board, Colyer will be serving as interim CEO.

Despite the fact that it was very clear what would happen under the "rights" package, I was slightly confused on what the purposes behind the potentially dilutive measures were. However, Goff taking control of the company by instating his own associate as interim CEO shows that he means business and wants to get his hands dirty to bring about a successful outcome for his investment (worth almost $29M as of the close on 8/17/18). Not surprisingly, the stock rallied sharply from $4.50 after the rights of shareholders were amended to $6 per share after Goff & Colyer's addition to the board. Ironically, in the press release after the CEO stepped down, a spokesman for Contango sang Goff's praises for his 'strategic investment in Contango' and 'ideas for the future of Contango.' I do indeed look forward to seeing what his plans are for the company given his large personal stake in the company.


Just a quick tidbit on global plastic bag pollution, bans, taxes, and policy outcomes here from Priceonomics.

See my original piece on plastic from week 23 here.

Meanwhile, Corporations are shattering their 2015 renewable energy consumption records, however, despite renewable energy growth, an energy 'transition' has not occurred yet.


- KKR is trying to help fix India's trash problem (Pitchbook)

- Latticework of Mental Models: Lollapalooza Effect (Safal Niveshak)

- Activist Elliott Management pushes for outright sale of Nielsen (CNBC)

- China seeks influence in Europe, one business deal at a time (NY Times)

- Panera Bread founder leading large equity buyout of Zoe's kitchen (WSJ)

- Unlike its counterpart KKR's IPO, TPG Capital is electing to stay private (Pitchbook)

- Kobe Bryant turned $6M into a cool $200M after Coke purchased a stake in the BodyArmor sports drink company

- Turkey's currency and debt crisis (Aswath Damodaran)

- Baupost Group added $200M to bearish bet against Tesla (Bloomberg)

- The microeconomics of subscription based business models (


- Meet the teen who rides an autonomous Waymo vehicle every day (Bloomberg)

- Meet Virgin Galactic's Rocket Man (New Yorker)

- Gene editing for space travel to Mars (Wired)

- Musk says he's working with Goldman and Silver Lake to take Tesla Private (Bloomberg)

- It's official - Goldman Sachs is advising Tesla (Business Insider)

- Inside Magic Leap's quest to remake itself as an ordinary company (Wired)

- Kevin Durant & Will Smith link up with a16z for more tech deals


- Sila Nano raises $70M for big lithium battery upgrades (Tech Review)

- Karma raises $12M to help restaurants/groceries to sell unsold food at a discount & solve food waste (TechCrunch)

- Nio, a Chinese electric car company, files for $1.8B IPO (TechCrunch)

- Alphabet invests $375M into next generation health insurer Oscar Health (TechCrunch)


- Masters in Business: Richard Sylla on the lowest interest rates in recorded history (!)

- The Investors Podcast - learning from Alibaba's CEO, Jack Ma

- BiggerPockets #292 - 200+ deals in the first 4 years w/ Ryan Pineda

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