Paulson & Co Increases Stakes in Mallinckrodt Plc (MNK) by 13%


Wednesday, Thursday and Friday last week saw John Paulson’s Paulson & Co increase its stakes in Mallinckrodt PLC (NYSE:MNK) by 13%, spending more than $57 million in stock. Between May 7 and May 9, the fund acquired 786,207 ordinary shares, at prices ranging from $72.91 per share to $76.99, and now owns more than 6.72 million shares –up from 5.94 million held previously.

The purchases both anticipated and followed the company’s last earnings call, which took place on May 8. Mallinckrodt PLC (NYSE:MNK) reported that its fiscal second-quarter profit fell 66%, mainly in account of a drop in revenue and increased restructuring costs. Nonetheless, the company raised its earnings outlook for the current fiscal year: adjusted earnings are expected at $3.30 to $3.60 per share (up from $2.65 to $2.95 per share), on revenue of $2.28 billion to $2.38 billion (up from $2.2 billion to $2.3 billion).  The management said that the main drivers for this growth should be an improved performance and the recently completed acquisition of Cadence Pharmaceuticals Inc. In addition, the company agreed, last month, to buy Questcor Pharmaceuticals Inc (NASDAQ:QCOR) for about $5.6 billion in cash and stock.

John Paulson

Mallinckrodt PLC (NYSE:MNK) is a $420.5 million market cap specialty biopharmaceutical company focused on the treatment of patients with serious, difficult-to-treat autoimmune and inflammatory disorders. It was born as a pharmaceuticals spinoff from healthcare products and devices maker Covidien plc (NYSE:COV).

In addition to Mr. Paulson, who is the largest hedge fund shareholder, other prominent investors are betting on this stock. Roberto Mignone’s Bridger Management stared a position in the stock (with 1.12 million shares) over the last reported quarter. For his part, D. E. Shaw almost doubled its stakes in the company, to 1 million shares.

Paulson & Co started operating in 1994, using a merger arbitrage strategy that boasted somewhat mediocre returns. However, Mr. Paulson only became famous after shorting subprime mortgage securities during the financial crisis, and is now recognized for his big macro bets, and his event-driven investing style. For instance, in 2010, he made $5 Billion by betting on gold (although he lost a considerable amount of it, three years later, when the metal fell 28%, in 2013). Moreover, in 2013, his $2.7 billion Recovery Fund posted net returns of 63%, his Paulson Enhanced funds returned 33% and the Advantage funds, more than 26%. His equity portfolio’s value now surpasses $20 billion.

Disclosure: none.