ITMN: Hillside Advice Pays Off Big

At Hillside Advisors, we first recommended Intermune convertibles and stock on June 26th and then again on August 11th.  In each case the stock was trading just above $44.

The first time we led our note by saying “Look for Intermune stock to continue its strong performance in anticipation of a takeout, which we believe will ultimately occur. It makes too much sense not to happen.”  We posted this on the Hillside Advisors website, several weeks before we launched our flagship Hybrid Vigor newsletter.

In our second note, part of our ninth issue of Hybrid Vigor, we argued that Intermune’s aggressive internal development would actually help spur an acquisition. This went against what many followers of the name were saying.  “A strong internal strategy also improves ITMN’s negotiating position,” we wrote two weeks ago.  We closed by suggesting that the 2.5% convertibles of 2018 “can provide long-only convertible investors exposure to Esbriet’s US approval and early launch and, yes, a potential takeout.”

Yesterday, Intermune announced that it had reached a definitive agreement to be acquired by Roche for $74 per share.  At an $8.3 billion takeout valuation, the deal represents a very attractive premium for ITMN shareholders and outright convertible holders.  At today’s prices, outright convertible holders have gained about 54% from the price at the time of our August 11 note, better than 85% of the stock’s gain.

While we don’t expect winners like this often, it does show the benefit of holding some low-premium bonds when there’s a compelling reason to think the stock can go appreciably higher, and of considering a “barbell” approach rather than focusing on bonds concentrated in the dangerous 120-130 zone.

Hybrid Vigor Volume 1 Issue 3

Click here to download a PDF of the newsletter

Dear Friends,

Welcome to the second week and third beta edition of our institutional flagship product Hybrid Vigor, the Hillside Convertible Advisory Letter. We're thrilled with the reception and feedback we've received thus far.  We hope Hybrid Vigor will become a standard part of your market review and idea generation processes. Please keep your feedback coming.

As a reminder, we plan to publish beta editions of Hybrid Vigor through mid-fall, at which point we will be going to a subscription-based model.

In today's edition we introduce a list of bonds that score favorably on our proprietary HARP (Hillside Adjusted Risk Point) measure--just because the market is expensive doesn't mean there aren't some decent-looking bonds out there.  Contrasting this list with the ones from last week has some strategic implications you may want to consider.  Our head of equity research, Jeff Alton, takes a brief tour through a couple of names on the list.

In addition, our contributor Roman Terekhin examines a group of health-care convertible issuers that might be takeover candidates, and estimates how the convertibles might be affected.

We also provide a quick update regarding recent developments at EZCORP, whose new issue we profiled last month on our website.

Finally, we begin to introduce our team to you, beginning with yours truly today.

Click here to download the third issue of Hybrid Vigor (

Thanks again for your interest and support!

Bill Feingold
Co-Founder and Managing Principal
Hillside Advisors LLC