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Investors Who Waited For Musk's Twitter Deal Will Be Rewarded

Investors Who Waited For Musk's Twitter Deal Will Be Rewarded
The world's richest man is about to make a swath of already wealthy investors even wealthier.
Firms that invest for wealthy clients, such as Pentwater Capital, Millennium Management, Adage Capital Partners, and Greenlight Capital, could earn hundreds of millions of dollars after Elon Musk completed his $44 billion acquisition of social media platform Twitter.
They are not the only ones benefiting from one of the most tumultuous takeover deals in recent history. Pension funds in New York, California, Florida, and Wisconsin that invest for teachers, police officers, and state employees stand to profit as well.
If timing is perfect, investors like Pentwater, which purchased 18 million shares during the second quarter to own more than Twitter co-founder Jack Dorsey, could walk away with a 40% or higher return. The astounding gain comes at a time when the broader market has been volatile due to concerns about rising interest rates and a possible recession.
Pentwater declined to comment, while other firms and state pensions either declined to comment or did not respond to requests for comment. The funds held Twitter investments at the end of the second quarter, but it is unknown if they changed their positions in the third or fourth quarters.
Believing the deal would go through was not for the faint of heart, according to investors, lawyers, and academics, who warned that whoever walks away with a large profit did so at great risk.
Musk himself increased the risk by initially saying he wanted to buy Twitter, then backing down in July, then agreeing to it again in October.
"Whenever we see a deal of this size there are arbitrage opportunities," said Vanderbilt University professor Joshua White, adding "and this one booked in a lot of uncertainties."
If the deal had failed, the price floor for Twitter stock would have been "unknown," according to White, who added that investors took their chances in Delaware Chancery Court, where corporate disputes are settled. Musk has until Friday to close his case, according to the court's chief judge, Kathaleen McCormick.
According to regulatory filings and data, investors sold 107,626 million Twitter shares in the second quarter, with activist investors and tech-focused funds leading the way.
More investors were put off when Musk announced in early July that he was leaving because Twitter had violated multiple provisions of the merger agreement. As the stock price fell early in the third quarter, some investors saw an opportunity to buy in for a low price.
Those who arrived at the time or who stuck to earlier wagers say they believed in the rule of law.
For Pentwater's founder, Matthew Halbower, a Harvard Law School degree and a quarter-century of experience betting on deals gave him the confidence to say in July that the deal would close at the planned price of $54.20. Halbower told associates, "He read the merger agreement backwards and forwards, saw how Delaware Chancery court operates, and concluded there was no way for Musk to wiggle out."
"Musk trapped himself. He could not get out of the contract," said University of Michigan professor Erik Gordon, adding, however. that Twitter investors were not trapped.
"Those who stayed in are doing so because they think it will be a good investment, perhaps a mixed financial, social and political investment."
According to letters to investors reviewed by Reuters, David Einhorn, who runs Greenlight Capital and has traded barbs with Musk on Twitter about Tesla's future, was similarly convinced the court would hold Musk to the contract.
"One way or another, the deal will close at or near the originally agreed upon price," Einhorn wrote last week. Greenlight stands to earn a 45% return on the transaction and has already returned 18% in the first nine months of the year, while the S&P 500 fell 24%. Greenlight did not respond.
"Betting against Musk winning in the long run is usually a bad bet," Michigan's Gordon said.

Christopher J. Mitchell

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