Some Funds Think Elon Musk Will Have To Buy Twitter

(Bloomberg) — Hedge funds like David Einhorn’s Greenlight Capital and Pentwater Capital Management are betting that Elon Musk won’t get away with it this time.

Musk, the world’s richest person and well known to regulators in terms of securities law, is seeking to back out of his deal to buy Twitter Inc. for $44 billion. Several hedge funds have bought stocks, options or bonds, on speculation that Musk will lose a trial beginning Oct. 17 in Delaware Chancery Court.

That could be a positive for a type of hedge fund going through a rough year. Funds labeled “event-driven,” which often bet on mergers and acquisitions, are down 4% on average, according to research firm PivotalPath.

The law is clear, Einhorn told investors in a letter last month. And “if it were someone other than Musk, we would reduce the chances of the buyer walking out of the deal to much less than 5%,” he said.

The fund manager, whose firm bought Twitter shares at an average price of $37.24, dismissed speculation that the court would rule in Musk’s favor to avoid complications if the $250 billion-plus tycoon simply he chooses to ignore her decision.

“We believe that the incentive of the Delaware Chancery court, the nation’s preeminent and most respected business court, is to follow the law and apply it,” Einhorn wrote.

An attorney for Musk and a Twitter spokesman declined to comment.

Pentwater, led by Matthew Halbower, bought more than 18 million shares of Twitter in the second quarter, making his company the seventh largest owner with a 2.4% stake. He told CNBC in July that he anticipated Musk, who offered to buy Twitter for $54.20 a share, would be forced to complete the purchase.

The market

So far, the market appears to support that view.

On Tuesday, as US stock markets posted their biggest drop in more than two years, Twitter shareholders voted to approve the merger, with the stock posting the second-best performance in the S&P 500, up 0. .8% to $41.74. Some analysts and investors, including Einhorn, have commented that the shares could fall to $20 if the deal falls through.

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Hedge Funds Are Betting Elon Musk Will Be Forced to Buy Twitter

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Some Funds Think Elon Musk Will Have To Buy Twitter