Einhorn Takes Cigna Stake in Bet Obamacare Cutback

Tuesday, 24 Jul 2012 03:36 PM

 

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Greenlight Capital Inc., the $7.7 billion hedge fund run by David Einhorn, said it bought shares in Cigna Corp. and Coventry Health Care Inc., while selling its holdings in Dell Inc. and Best Buy Co.

Cigna, based in Bloomfield, Connecticut, and Coventry Health in Bethesda, Maryland, have unlevered balance sheets and trade at single-digit price-earnings ratios, making them cheap, Greenlight said in an investor letter dated July 23, a copy of which was obtained by Bloomberg News.

“There is the additional unpriced upside in the possibility that the election changes the political landscape, resulting in a possible modification or repeal of Obamacare,” the hedge fund said in the letter.

Mitt Romney, seeking to defeat President Barack Obama in this year’s elections, has vowed to repeal Obama’s health-care overhaul after the U.S. Supreme Court on June 28 upheld the core of the legislation. Greenlight, whose co-founder Einhorn is known for betting against Lehman Brothers Holdings Inc. before it collapsed in September 2008 and putting pressure on companies such as Green Mountain Coffee Roasters Inc., said Cigna deserves a higher multiple because the plan-administration business doesn’t take risk.

Cigna Rises

Cigna rose as much as 1.1 percent Tuesday after Bloomberg News disclosed Greenlight’s investment and gained 0.1 percent to $41.18 at 2:45 p.m. New York time. Coventry Health gained as much as 1.3 percent, while Best Buy fell as much as 4.3 percent and Dell declined as much as 2.7 percent.

“They have no exposure to the European currency crisis, a possible Chinese slowdown or other cyclical headwinds,” the hedge fund said.

Jonathan Gasthalter, a spokesman for New York-based Greenlight, declined to comment.

Greenlight returned 3.4 percent in the first half of the year, according to the letter. Hedge funds gained 1.1 percent, according to data compiled by Bloomberg.

Greenlight said its Dell investment was a “disappointment” and the fund sold the shares at a loss. While Dell has a “good” balance sheet, the firm will probably try to use much of its cash to buy its way into a profitable business, Greenlight said.

“At a minimum, this will erode some of the value cushion that the cash balance creates,” it said.

Best Buy

The hedge fund said it was “worried” that Best Buy would experience more disruptions to its business as the Richfield, Minnesota-based company tries to come up with a strategy after former chief executive officer Brian Dunn resigned in April, amid revelations that he had an inappropriate relationship with a female employee.

Greenlight said its largest disclosed long holdings at the end of the second quarter were Apple Inc., General Motors Co., gold, Marvell Technology Group and Seagate Technology Plc.

© Copyright 2014 Bloomberg News. All rights reserved.

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