Pacific Brands (PBG) recently announced that it received a takeover offer from US company HanesBrands, which the Board has unanimously recommended.  Unfortunately, I had fully exited my position in March so didn’t benefit from the premium to the share price.  However, I feel that the stock was pretty close to a fair valuation when I sold out so I’m not looking back (with the benefit of hindsight) and regretting my decision.  In fact, at the time of selling down I did consider whether a takeover offer might be forthcoming, but my general view is that I shouldn’t buy or hold stocks if the investment result is dependent on a takeover offer as they are notoriously hard to predict.

Here was the history of my trading in Pacific Brands:

• 22 July 2015 – initiated position at $0.46
• 8 December 2015 – sold down a third of my holding at $0.74 based on an automatic selling rule that I have instituted whereby I sell down a third of my holding when it is up by 66% from my original acquisition price unless it is still significantly undervalued and I am overwhelmingly confident of my analysis
• 2 March 2016 – sold down a further third of my holding at $0.95
• 23 March 2016 – sold down the remainder of my holding at $1.01

As mentioned above, I felt that $1.00 per share was close to fair value for the stock, and before the takeover offer the stock actually traded back down to $0.87 per share.  The takeover offer was made at $1.15 per share which equated to an EV/EBITDA multiple of 13.5x (based on historical EBITDA pre significant items).  I believe that it would have been hard for the stock to trade up to that sort of level in the absence of a takeover.

In the end, this was an extremely successful investment for me, close to doubling my money in 8 months.  The key to the success of this investment, was being able to look through a number of non cash impairments to understand what the underlying performance of the business would look like after divesting the Brand Collective unit.  In my view, the performance of that unit was significantly masking very strong performance by both Bonds and Sheridan which were Pacific Brands’ two main brands.  In the end, the investment thesis played out exactly as I had hoped, but over a much shorter time period than I initially would have imagined (no complaints from me on that).