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A Politician Buys Fidelity National Just Days Before Takeover Rumors Emerge
$FIS is up 5% on the news
There is no doubting that politicians have access to material insider information that other investors in capital markets do not have access too. As a politician you are able to see the facets of the capital markets, business and have direct communication to industry experts that the retail trader does not have.
Just imagine the profitable trades you could make as an investor if you had the ability to roam through the Washington DC halls, where bills are passed, secrets are whispered and information not known to the public is talked about in bathroom stalls.
That is exactly why we follow politicians and their stock trades. Because following their stock trades is a way for us to coattail politicians into companies where they have material insider information.
Take Josh Gottheimer as an example. Gottheimer is a current member of the U.S. House of Representatives from New Jersey’s 5th district. Gottheimer has been in office since 2017 and has a background working for the Federal Communications Commission, a strategist at Microsoft and was recently named VICE CHAIR OF NATIONAL SECURITY SUBCOMMITTEE ON HOUSE FINANCIAL SERVICES COMMITTEE.
Being elected the Vice Chair on the House Financial Services Committee likely gets Gottheimer access to information that most investors don’t get the pleasure of having. Which made Gottheimer’s recent purchase of Fidelity National Information Services (FIS) extremely interesting.
For context, Gottheimer purchased $1-15k worth of Fidelity National Information Services on December 1st, 2022. The trade was recorded publicly one month later January 4th, 2023.
Out of all the purchase Gottheimer made, Fidelity was the most interesting one. Why? Well because they are a financial firm for the capital markets. An industry that Gottheimer was recently elected to. An industry that Gottheimer monitors and creates policy over. An industry where Gottheimer likely has more knowledge on than most investors.
What is even more interesting is the recent speculation that Fidelity National is an activist target and might get taken over.
The rumors of a takeover started on November 29th, 2022, just two days before Gottheimer purchased his stake in the company. These rumors were spread by a Bernstein analyst that stated the following:
"We see value creation opportunity through divestiture of underwhelming merchant business, better company operation, better guidance management and improved earnings quality," Bernstein analyst Harshita Rawat, who has a market perform and $70 price target on FIS, wrote in a note on Tuesday.
Rawat argued that a divestiture of the merchant business could unlock at least 30% stock upside for FIS. She sees a 8x EV/EBITDA 2023 for merchant & LDD multiple for banking/capital markets businesses. She also highlighted that FIS trades at 9.7x 2023 PE vs peers such as Fiserv (FISV) trading at 14x.
"The FIS-Worldpay merger has been underwhelming," Rawat wrote. "The revenue synergies have been modest at best. Worldpay has turned out to be a less attractive asset than originally perceived, and has added more earnings volatility and valuation discount to an otherwise steady-ish FIS business."
Gottheimer purchased these shares just days after the rumor surfaced. Is that illegal? No. But where there is a grey area on this entire thing is Gottheimer’s ability to analyze this situation from the eyes of an insider literally making laws on National Financial Security within the United States. Which leads us to speculate the following:
How much information does Gottheimer have on a potential takeover of Fidelity National? Could he have asked some colleagues around on who is interested in buying the merchant bank? What price the bank will sell for? And even how legit the deal is.
Fourteen days after the Gottheimer purchase Fidelity National launches a strategic review, reaches a shareholder pact and names a new independent chairman of the board. A strategic review indicates that the company is looking to sell all or a part of the business to a strategic buyer.
What a coincidence. In two weeks from the Gottheimer purchase a strategic review is announced. The takeover rumor is real.
But this gets even better. Just yesterday another analyst said Fidelity National could be worth $85-105 per share in a takeover deal.
An offer for ~11x-13X 2023E EBITDA could be a possibility, Baird analyst David Koning, who has an outperform and $84 price target on FIS wrote in a note on Thursday. If the company decides not to sell, Koning sees a potential that FIS divest Capital Markets at some point; ~$15-$17 billion seems reasonable (~11-13X EBITDA). A sale of the business would reduce leverage to ~1X from ~3x and only be ~2-3% EPS dilutive.
So just one month after Gottheimer purchases Fidelity National we get a strategic review and two analysts coming out of the gate saying the company could sell for $85-105 per share and if they don’t sell the entire company, they could divest the Capital Markets business for $15-17 billion.
Then at the close yesterday another note came out saying the following on Fidelity National:
There's speculation that Fidelity National (FIS) has received interested from a strategic buyer looking to acquire all or some of the payments company, according to a Betaville "uncooked" alert. The identity is unknown, though the buyer may be a credit card payment company or U.S. technology firm.
What an amazing trade for Gottheimer. In less than two months a company he buys has a bidder and will likely get taken out for a nice premium from the original purchase price. What an amazing time to be a politician. You have the ability to trade on material insider information and the SEC turns a blind eye.
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Happy Friday !