Hedge funds predict Musk will lose a lawsuit

According to reports, although the revelation of the Twitter "whistleblower" gave Tesla CEO Elon Musk to abandon the acquisition of Twitter to increase the chips, including Greenlight Capita and Pentwater Capital Management Several hedge funds, including those, believe that Musk will not get his wish in the end.


Twitter sues Musk for breach of contract (abandoned acquisition of Twitter) and will go to trial on October 17. At present, multiple hedge funds that have bought Twitter stock, options, or bonds expect Musk to lose the case and the court will ask Musk to proceed with the acquisition.


The ruling could be a boon for "event-driven funds," a type of hedge fund, which is struggling. So-called "event-driven funds" typically bet on mergers and acquisitions between companies. The fund has lost an average of 4% over the past year, according to research firm PivotalPath.


Greenlight Capital founder David Einhorn believes the Delaware Chancery Court has reason to force Musk to complete the acquisition. Einhorn said: "If the court lets Musk get out of the woods (abandoning the Twitter acquisition), there will be more buyer remorse and lawsuits in the future."


Greenlight Capital expects the deal to close as high as 95%. In July, Greenlight Capital bought Twitter shares at an average price of $37.24 per share. Einhorn expects the company's stock price to rebound once Twitter wins the case. Yesterday, Twitter shares closed at $41.74 per share, compared with Musk's offer price of $54.20.


Pentwater Capital Management, a hedge fund led by Matthew Halbower, bought more than 18 million Twitter shares in the second quarter of this year, making it Twitter's seventh-largest shareholder with a 2.4 percent stake. Halbauer also expects that Musk will be forced to close the deal.

So far, the market seems to support this view as well. U.S. stocks suffered their biggest drop in more than two years on Tuesday. Shares of Twitter rose 0.8% to close at $41.74 on the same day as Twitter shareholders voted to approve Musk's acquisition of Twitter, the second-best performer on the S&P 500.


Twitter hasn't closed above $44.50 since May when Musk first hinted that he might walk away from buying Twitter. Some analysts and investors, including Einhorn, said Twitter shares would fall to $20 a share if the deal fell apart.


In addition, some investors and analysts said the two sides may reach a settlement before the trial, and Musk is expected to buy Twitter for nearly $50 per share, compared with the $54.20 previously reached by the two parties.


Carronade Capital Management is a $900 million multi-strategy credit hedge fund that invests in a variety of Twitter debt and stocks. The fund believes the deal will eventually close after a trial or through a settlement.


Chris Pultz, investment manager at investment firm Kellner Capital, believes that Musk and Twitter may reach a settlement before the trial. Ultimately, Musk would buy Twitter for 10% to 15% less than the original deal price.


But Cabot Henderson, a mergers and acquisitions strategist at investment research firm Jones Trading, believes Twitter is now less willing to accept lower prices because the company has held the upper hand in pretrial hearings, making it difficult for Twitter to accept lower prices. The odds of a Twitter settlement are lower than previously thought.

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