Chris DeMuth's State of the Markets July 2023

Episode Summary

Executive Summary: The episode centers on three high-conviction event-driven situations: Activision/Microsoft, Cmon/MaxLinear, and Liquidia, with a later discussion of Burford/Argentina. Chris Demuth argues that Activision was correctly decided by courts and is effectively headed to close, Cmon likely has a strong legal case but faces Singapore/arbitration timing and financing risk, Liquidia remains an attractive litigation-driven upside story, and Burford’s Argentina award trial appeared favorable for Burford despite collection and quantum uncertainty.

Main Topics: Activision Blizzard / Microsoft merger resolution (Priority: 5/5): The hosts revisit the US and UK/CMA regulatory battles, emphasizing that the US court decision was exceptionally well-reasoned and that the CMA process appears to have reversed toward approval, making closing highly likely. Cmon / MaxLinear merger dispute and MAE claim (Priority: 5/5): They discuss the surprise Chinese regulatory approval, MaxLinear’s subsequent material adverse effect (MAE) termination attempt, the legal strength of Cmon’s position, and the possibility of a negotiated recut of the deal. Event-driven arbitration and cross-border legal complexity (Priority: 4/5): A major theme is how merger arb now depends on understanding legal forums, procedural timing, and international arbitration—especially Singapore—rather than just headline deal spreads. Liquidia litigation upside (Priority: 4/5): Liquidia is framed as a high-upside legal/regulatory catalyst story, with the view that the company is likely to prevail on its remaining patent/approval path and could become substantially more valuable once it reaches market. Burford Capital / Argentina YPF trial (Priority: 3/5): The discussion covers the three-day quantum/interest trial, with both speakers leaning positive on Burford’s legal position while acknowledging collectability and political-game-theory issues. Market inefficiencies and surprise-driven investing (Priority: 3/5): The conversation repeatedly emphasizes that the biggest opportunities arise in unusual, one-off situations where legal outcomes, timing, and market psychology create temporary dislocations.

Key Arguments: The Activision US court decision was described as unusually strong, thorough, and effectively unappealable, reinforcing the view that Microsoft was correct on the merits. The CMA’s reversal/approval path suggests the last material blocker is disappearing, making deal close highly probable. Activision’s 99-cent bump/extended terms understated the value transfer and showed an agency problem: management was incentivized to prioritize closure over maximizing shareholder value. Cmon appears to have a strong Delaware MAE argument against MaxLinear; the harder question is Singapore process/arbitration, financing durability, and timing. Because the Cmon deal depends on financing and cross-border process, the likely outcome may be a negotiated restructuring of consideration rather than a clean litigation win or loss. Liquidia’s path to market is seen as highly valuable despite legal delays; the hosts believe the company is nearing commercialization and that the stock can still have multi-bagger potential. Burford’s Argentina case looked legally favorable, and the key remaining issues are damages size, interest rate, and collection mechanics rather than liability. Argentina’s track record makes any sovereign-related recovery uncertain, but Burford’s asset-recovery capability improves collectability odds. The episode argues that event-driven investors should focus less on traditional merger-arb comfort and more on litigation, arbitration, and procedural edge cases where alpha can persist.

Data Points: Episode date context: July 31, 2023 - The monthly state-of-the-markets discussion is framed around end-of-July developments. Stream transcript library size: 26,000+ expert transcripts - Mentioned in the sponsor read for the expert research platform. Traditional expert network cost savings: 40% less - Stream claims its model costs 40% less than 20 calls in a traditional expert network model. Activision shareholder approval: 99% - Chris references that 99% of shareholders voted to approve the Microsoft deal. Activision bump/dividend: $0.99 per share - Activision received a 99-cent dividend in connection with the extension. Cmon pre-approval stock level: ~$50/share - The stock traded around 50 before Chinese approval news. Cmon spike after approval: ~$90/share - Shares jumped sharply after SAMR approval before MaxLinear’s MAE claim. Cmon later trading level: ~$60/share - After the MAE claim, the stock fell back to around 60. MaxLinear deal consideration: Over $100/share - The announced consideration for Cmon was described as over 100 per share, mostly cash. Cmon cash proceeds: $3.1 billion - Chris notes Cmon shareholders were to receive about 3.1 billion in cash. MaxLinear enterprise value: Under $2.5 billion - Used to illustrate financing strain and incentive to exit the deal. Combined enterprise value: About $4 billion - The combined market/enterprise value was cited in the discussion of relative deal size. Potential financing hit to lender: ~$1 billion bath - Andrew references a rumored potential loss for Wells Fargo on a $3 billion loan. Liquidia market cap: ~$500 million - Used to frame upside versus the size of the target market. Liquidia stock price: Under $8/share - Chris describes the stock as trading under 8 and still offering substantial upside.

Pivotal Quotes: "The judge's decision was magnificent." — Chris Demuth: His assessment of the US court ruling on Microsoft/Activision, praising its quality and clarity. "If you're big enough to litigate, boy, Microsoft should feel great about their case." — Chris Demuth: On the precedent value of the Activision ruling for large companies challenging regulators. "I think the legal case in Delaware is good." — Chris Demuth: On Cmon’s position versus MaxLinear’s MAE termination attempt.

Implications: Event-driven investors should expect more returns to come from legal process mastery than classic merger spread analysis. Cross-border deals now hinge on court quality, financing, arbitration timing, and negotiation leverage.