Don’t judge each day by the harvest you reap but by the seeds that you plant – Robert Louis Stevenson

The Fund initiated a position in Community Health Systems, Inc. (“CYH”) post-election, which outperformed in December. CYH owns and operates hospitals and provides in home health care. With a Trump victory, CYH shares were pummeled along with other healthcare companies as market participants sold off the sector on the belief in the repeal of the Affordable Care Act (“ACA”) by the new Administration. The selloff appeared to us, a vast over-reaction. It is unlikely that ACA will be repealed without any replacement program. Further, as specific to CYH, the Company has been divesting assets, paying down debt and generally making what appear to be reasonable capital allocation decisions.

The Fund lost money on its position in the equity of GNC Holdings, Inc. (“GNC”) in December. GNC, to our thinking, was a plausible acquisition candidate. GNC’s management had retained Goldman Sachs in May to consider strategic initiations including a prospective sale of the Company. In December, it was reported that the two purported Chinese suitors were not interested in the 6,700 US stores, but the Company’s Asian business solely. Various news outlets suggested that the Company was seeking private equity buyers for the US operations, to dovetail with a sale of Asia to the Chinese suitors. To date, no additional information has materialized and negative sell-side reports from Barclays, Piper Jaffray (and as of this writing, oddly, their banker, Goldman Sachs) have weighed on shares.

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The above post has been excerpted from a letter of Tiburon Capital Management.

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