The U.S. Supreme Court's 6-3 ruling on Thursday rejecting a challenge to the use of federal subsidies in the Affordable Care Act wasn't just a win for President Obama. It also bodes well for the health care sector and its investors in what has already been a strong run in recent months.
The Health Care Select Sector SPDR Fund (XLV), which tracks the health care companies listed on the S&P 500, gained more than 20% in 2014. It has climbed an additional 10% year-to-date.
Mergers and acquisitions are among the main forces driving the sector, and last week's ruling is expected to intensify health care M&A activity. Novartis (NVS) got the ball rolling on Monday with the announcement of a deal to buy biotech company Spinifex.
Billionaire investors and hedge fund managers like Bill Ackman and Larry Robbins are among those enjoying the benefits health care's stock market run and profusion of deals. And they stand to make even more. (Average investors can follow along at BillionairesPortfolio.com, which provides insights into sophisticated hedge fund analyses and strategies, tracks billionaire health care M&A bets and helps average investors to do the same.)
Here is a look at three potential M&A deals and how the billionaires are playing them.
1. Zoetis - Valeant
WSJ reported on June 25 that Valeant Pharmaceuticals International (VRX) has approached Zoetis (ZTS) regarding a potential acquisition. Should the deal come to life, potentially no one will be happier than Bill Ackman.
The billionaire at the helm of Pershing Square has major stakes in both companies. As per his most recent holdings disclosure, Ackman's top position is Valeant, of which he holds 19.5 million shares. He also has a sizable investment in Zoetis, with 41.8 million shares.
Pfizer (PFE) spun off Zoetis in 2013. The animal health care company caught Bill Ackman's eye in 2014, and in November, his fund disclosed an 8.3% stake in the firm. He has since maneuvered to secure Ackman's Pershing Square space on the Zoetis board and pressured the company to cut costs, including laying off as much as 25% of its workforce.
Though Ackman waited until early 2015 to invest directly in Valeant, he has had a relationship with the company for quite some time and in 2014 teamed up with it in an ultimately failed bid to acquire Botox maker Allergan (AGN). In May, he called Valeant the next Berkshire Hathaway (BRK.A) (BRK.B).
A potential Valeant-Zoetis transaction appears to be in the earliest of stages, but it isn't the first or last bid we'll see from Valeant. The company completed the acquisition of specialty pharmaceutical company Salix in April, CEO Michael Pearson told Bloomberg in May that the firm has been and will continue to make acquisitions.
Other billionaires could get a boost off of a Valeant-Zoetis merger as well. Andreas Halvorsen, Steve Mandel and Larry Robbins have stakes in Valeant, and George Soros has invested in Zoetis.