Merger arbitrage in practice: Sand Grove Capital

Given the renewed interest in financial market activity around mergers and acquisitions, I thought it might be interesting to have a look at the regulatory disclosures for one of the funds that has caught my eye lately.

I hadn't heard of Sand Grove Capital until recently, but it ended up taking a sizeable (almost 3% at one point) short position in Melrose Industries in the run-up to the acceptance of its bid for GKN.

Here it is at play in the bid - long GKN 1.27% using CFDs on 12th March and short Melrose 2.09% also using CFDs on 14th March.

There's a similar story in the GVC/Ladbrokes takeover. Here is Sand Grove long Ladbrokes 2.1% on 19th March using CFDs and short GVC 1.87% also using CFDs on the same day. 

And we see the same thing with Tesco/Booker. Here is Sand Grove long Booker 1.17% using CFDs on 7 Feb and short Tesco 0.22% using CFDs on 8 Feb.

And here are a few more examples of Sand Grove's position in UK PLC that are/were potential or actual takeover targets - Fenner (long 3.63% using CFDs, 5 April), Fidessa (long 1.39% using CFDs, 18 April), Sportech (long 8.91% using CFDs, 8 January), Sevelec (long 3.17% using CFDs, Nov 2017) and Brammer (long 4.67% using CFDs, Dec 2016).

Obviously, their main approach is to gain exposure through derivatives. On a quick search I could only find one disclosure - in respect of Revolution Bars - where there was an actual shareholding. This was reduced later, according to reports, when a takeover was rebuffed.

Stewardship

What I couldn't see on the Sand Grove Capital website was a a Stewardship Code statement. Just as a reminder, the FCA Conduct of Business rules say:

A firm, other than a venture capital firm, which is managing investments for a professional client that is not a natural person must disclose clearly on its website, or if it does not have a website in another accessible form:

1. (1) 
   the nature of its commitment to the Financial Reporting Council’s Stewardship Code; or

1. (2) 
   where it does not commit to the Code, its alternative investment strategy.

I can't see a statement on the website, but, weirdly, you can access a statement via this site which does third party hosting for regulatory disclosures. The Sand Grove statement is here. If you can't be bothered read it, here's the key bit:

The Firm manages event-driven strategies involving a variety of asset classes, global jurisdictions and timeframes, and approaches companies and their managements on a case-by-case basis. Therefore, while the Firm supports the principles of the Code, it does not consider it appropriate to conform to the Code at this time. 

If you stick the second sentence into Google you get a few other hits for hedge funds that coincidentally came up with the same set of words. Spooky.