Like the tobacco industry, the oil and gas industry is also undergoing consolidation, and the Fund has benefited from its holding in Baker Hughes, Inc. (NYSE:BHI) (“BHI”). The Fund’s position in BHI was initiated in late 2015 as an arbitrage opportunity when Halliburton Company (“HAL”) bid for BHI, and as a proxy for an anticipated return to growth in the oil services industry. Because the outcome of the merger was uncertain, the deal was written with a breakup fee of $3.5 billion, which we viewed as an attractive safety cushion for BHI in the event that the merger agreement was terminated. The deal did indeed break around mid-2016, and HAL paid the breakup fee to BHI, which then commenced a massive buyback of its stock. Shortly thereafter, General Electric Co. made an approach to merge its own oil and gas business unit with BHI. The Board of BHI approved the transaction and the merger is scheduled to close in the middle of 2017. We highlight this arbitrage win for the Fund as an example of an investment strategy that we sometimes employ as a supplement to our core value investing style.
From David Winters (Trades, Portfolio)' Wintergreen Fund (Trades, Portfolio) 2016 annual report letter to shareholders.
