Twitter arbitrage wager may repay large for Pentwater Capital

Among the many large winners in Elon Musk’s settlement to observe by together with his deal to purchase Twitter is an activist hedge fund primarily based in a coastal Florida metropolis that was simply wrecked by Hurricane Ian.

Pentwater Capital, a 15-year-old agency with near $5 billion in property, purchased a 2.4% stake in Twitter through the second quarter. The acquisition of 18.1 million shares price Pentwater roughly $725 million.

At $54.20, the value Musk has agreed to pay for Twitter, Pentwater’s stake could be price about $980 million. The inventory closed up 22% on Tuesday at $52, which continues to be under the acquisition value, signaling that Wall Road is not completely satisfied the deal will shut.

The Tesla and SpaceX CEO mentioned on Tuesday that he’d despatched Twitter a letter informing the corporate of his intent to stay to the phrases of the April settlement after beforehand making an attempt to again out. The 2 sides have been scheduled in courtroom in two weeks, and a part of Musk’s newest proposal concerned placing an finish to the litigation. Twitter has mentioned it obtained the letter and intends to shut the transaction at $54.20, however didn’t touch upon the litigation.

When Pentwater jumped into Twitter, the social media firm was in a holding sample. The inventory was languishing as Musk was placing out important tweets concerning the firm’s bot and spam drawback, hinting at a way of purchaser’s regret. The inventory dropped as little as $32.55 on July 11, simply after Musk formally tried to terminate the deal.

Pentwater was benefiting from what the agency noticed as a transparent arbitrage alternative. There was a signed contract on the desk and a bunch of cash to be made so long as the deal reached its logical conclusion.

“In my 23-year profession doing this, I’ve by no means seen an acquirer stroll away with none purpose,” mentioned Matthew Halbower, Pentwater’s founder, in an interview on Tuesday after Musk’s submitting landed with the SEC. “The likelihood of him with the ability to stroll away was very low.”

Halbower mentioned the one two causes that Musk must tear up the deal could be if there was fraud in Twitter’s monetary statements or if there was a fabric occasion that modified the worth of the corporate. Neither of these points have been at play, Halbower mentioned.

Greenlight Capital additionally jumped in through the second quarter, paying a mean of $37.24 for the inventory. In an investor letter, Greenlight’s David Einhorn mentioned there’s was $17 per share in upside rewards if the deal closed and an equal quantity in losses if it collapsed.

“So we’re getting 50-50 odds on one thing that ought to occur 95%+ of the time,” he wrote.

Whereas Pentwater immediately made Twitter one in every of its prime holdings when it bought shares within the second quarter, the agency hedged its wager with a hefty funding in places in case the inventory dropped in worth. So a portion of the features from its fairness funding pays for the places.

Pentwater has made different bets in and across the social media house. The agency is without doubt one of the prime buyers in Digital World Acquisition Corp., the particular objective acquisition firm that is been making an attempt to take former President Donald Trump’s media firm public, although the deal is being investigated by the SEC and the corporate just lately missed a key deadline to carry onto $1 billion in funding. Trump’s app, Fact Social, was created after the ex-president was booted from Twitter following the occasions of Jan. 6.

Halbower mentioned Pentwater has 44 workers, with simply seven or so in its workplace in Naples, Florida. The agency additionally has areas close to Chicago and in New York, Minneapolis and London.

The Naples workplace had its energy restored on Sunday, 4 days after Hurricane Ian slammed into the west coast of Florida as a Class 4 storm. The workplace reopened on Monday, Halbower mentioned.

Throughout the state, roughly 380,000 properties and companies have been with out energy as of Tuesday afternoon, down from a peak of two.6 million on Thursday, in keeping with PowerOutage.us. Collier County, which incorporates Naples, stays one of many counties with essentially the most outages.

Pentwater is not the one investor that is set for a giant payday ought to the Musk deal shut.

Longtime shareholder Saudi Prince Alwaleed bin Talal owns 39.95 million shares, price $2.17 billion on the acquisition value. Jack Dorsey, Twitter’s co-founder and former CEO, owns 18.04 million shares, valued at near $1 billion. Amongst establishments, the one buyers with an even bigger stake than Pentwater are Vanguard, BlackRock, SSgA and Constancy.

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