Caxton Bets on Airline Merger

Chidem Kurdas

Will the savings from the proposed merger of US Airways with American Airlines be enough to significantly lift profits? New Caxton chief Andrew Law apparently thinks so.

Last month he added to various Caxton funds’ holdings of US Airways, ending up with 5.4% of the carrier.   This is a passive position—Caxton is not known as a hands-on investor.

US Airways executives said the consolidation will be good for the industry, in the doldrums for many years. Mr. Law, for one, seems to be persuaded that the combined  company will do well.

US Airways, though the smaller party, is the acquirer because American is bankrupt. Usually the acquiring company’s stock goes down after the deal—a common arbitrage trade is to sell the acquirer and buy the target. But that pattern may not hold in this case. The recent wave of mergers are tough to arbitrage, driven mainly by industry-specific events that don’t give rise the usual price movements, according to Lyxor, the asset management arm of the French bank Société Générale.

There are legal challenges to the US Airways-American deal. The bankruptcy judge for American Airlines has to agree and pilots’ groups for and against the merger have sued in the bankruptcy court.

Mr. Law’s portfolio decisions are interesting in showing what he will do with Caxton. He is relatively new as the top decision-maker. Last year Caxton founder Bruce Kovner retired and Mr. Law, the investment chief  and a former Goldman Sachs proprietary trader, took over. The firm, once among the very largest hedge funds with around $13 billion at peak before the 2008 financial crisis, now manages $6.7 billion.


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