Activist investor Carl Icahn, short seller Dan Loeb, and David Einhorn and a Florida hedge fund acquired stakes in Twitter recently and their bets have paid off, reaping them hundreds of millions of dollars.
Carl Icahn, known for being an activist investor who seeks seats on the board of companies, accrued a stake in Twitter that is worth over $500 million during the the past few months, according to the Wall Street Journal.
He made a profit after billionaire Elon Musk said he would buy Twitter, the social media company, after litigating the proposed deal.
The CEO of Tesla said on Oct. 4 that he would go ahead with his takeover offer to privatize Twitter, which is likely to end the legal battle that might have forced him to acquire the company.
His one condition was that Twitter's suit in the Delaware Chancery Court against him must be dropped.
Musk said he plans to acquire Twitter for $54.20 a share, sticking with the original price. He had initially made an offer on April 25 but withdrew it on July 8, stating that Twitter's executives lied about the number of spam bots or fake accounts on the platform.
Pentwater Capital, a Florida-based hedge fund, also amassed a large number of shares in Twitter during the second quarter.
Before Musk had agreed to go ahead with the takeover of Twitter, shares of the company had been trading in the $40 range, well below the $54.20 he had offered to pay.
After Musk's announcement, shares of Twitter skyrocketed to over 22% and closed at $52 a share on Oct. 4.
Twitter Investors Net Large Profit
Icahn's stake was amassed when shares of Twitter were trading in the mid-$30s, the Wall Street Journal article said, citing sources close to the matter.
The estimated profit for Icahn Enterprises LP could net him over $250 million since Icahn invested in Twitter on the idea that Musk would not undergo a trial where he could have lost, the article said.
Icahn also believed that shares of Twitter should be valued at the mid-$30s in the long term.
Several other investors, including Daniel Loeb's Third Point and D.E. Shaw Group LLC, also invested in shares of Twitter in recent months and could net sizeable gains, the article said.
Pentwater could also receive a profit in the hundreds of millions of dollars, according to an article on CNBC. The Florida hedge fund acquired a 2.4% stake, or 18.1 million shares in Twitter, during the second quarter that cost about $725 million. Pentwater is an activist fund that has about $5 billion in assets and whose stake at $54.20 a share is valued at about $980 million.
Pentwater's timing was beneficial for the firm since the stock had sunk because Musk was tweeting about Twitter's spam and bot issue.
The stock fell to $32.55 on July 11 after the CEO of SpaceX attempted to scuttle the deal.
Pentwater founder Matthew Halbower told CNBC that Musk's legal battle with Twitter was an clear arbitrage opportunity.
“In my 23-year career doing this, I’ve never seen an acquirer walk away without any reason,” he said on Oct. 4. “The probability of him being able to walk away was very low.”
Greenlight Capital's David Einhorn also made an investment during the second quarter and shelled out an average of $37.24 for the stock. Einhorn said in an investor letter that if the deal closes, there is a $17 per share in a reward and if the deal fell apart, there would be an equal amount in losses.
“So we are getting 50-50 odds on something that should happen 95%+ of the time,” he wrote.
Other investors should reap significant rewards. Saudi Prince Alwaleed bin Talal, who has been a longtime shareholder in Twitter, owns 39.95 million shares, which is valued at $2.17 billion at the $54.20 a share price.
Twitter's co-founder and former CEO Jack Dorsey owns 18.04 million shares, which is valued at nearly $1 billion.
Vanguard and Fidelity, the retirement companies, and investment companies BlackRock and State Street Global Advisors own stakes larger than Pentwater's.
