Many Hedge funds, including Pentwater Capital Management and Greenlight capital, are betting on Elon Musk not getting away this time over the Twitter deal.
The richest man in the world, famous for sparring with regulators concerning securities laws, is trying to get out of the Twitter deal for $44 billion. Hedge Funds are taking positions in bonds, stocks, and options while speculating that Musk will lose the trial in Delaware Chancery Court, which begins on October 17.
The Twitter deal can be positive for an event-driven hedge fund that has had a tough year. These funds bet on M&A deals and were down on an average of 4%, per Pivotal Path, a research firm.
David Einhorn, founder and President of Greenlight Capital, told investors last month that handicap odds of someone other than Musk trying to get out of the Twitter deal was less than 5%.
Einhorn’s firm purchased Twitter shares at around $37.24 and ruled out the court decision in favor of Musk. The general speculation is the court would rule in favor of Musk and avoid the embarrassment of the man with a net worth of $ 250 billion, ignoring a contrary decision.
Einhorn wrote in that letter that the Delaware Chancery Court is the most respected and preeminent in the US. They will follow the law and apply it in the Twitter deal.
Matthew Halbower led Pentwater Capital and bought more than 18 million Twitter shares in the second quarter. It is now the seventh largest shareholder in Twitter, with a 2.4% stake. Halbower told CNBC that he expects Musk to complete the purchase and buys his portion at $54.20 a share.
Market Slump
On Tuesday, the US markets crashed the most in more than two years. The market has supported the view of the Twitter deal getting closed. The shareholders of twitter which had approved the buyout, saw the stock as the second-best performer in S&P 500 index, gaining 0.8% to close at $41.74. However, it has not surpassed $ 44.50 when that time, and Musk has suggested pulling out of the deal. Analysts and investors, including Einhorn, say that the stock will tumble to $20 if the deal does not happen.
Musk lawyers have pointed out to whistleblower Peiter Zatko, the former Security Head at Twitter Inc., saying hackers and privacy issues were deficiencies of the company. This revelation meant Twitter had breached the conditions of the merger agreement.
Some analysts and investors suggested that both parties settle before the trial starts, with Musk paying $ 50 a share to Twitter.
Credit Hedge fund Carronade Capital Management with a $900 million asset under management that includes investments in Twitter equity and debt securities, is betting the deal gets completed by trial or settlement.
Chris Pultz of Kellner Capital said that Twitter and Musk would agree to a 10% to 15% discount from the original deal price and avoid a trial.
