American investor and hedge fund manager David Einhorn’s Greenlight Capital disclosed that it had taken a stake in microblogging site Twitter (NYSE: TWTR) last month after the social media company took billionaire Elon Musk to court for walking out of the takeover deal. TWTR stock closed down 1.7% at $40.89 yesterday.
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Greenlight’s Stake in Twitter
In a shareholder letter, Einhorn stated that Greenlight took a stake in Twitter at an average price of $37.24 per share, Reuters reported.
Einhorn noted, “At this price there is a $17 per share of upside if TWTR prevails in court and we believe about $17 per share of downside, if the deal breaks. So we are getting 50-50 odds on something that should happen 95%+ of the time.”
The hedge fund manager believes that the Delaware Chancery Court, which has spent years building case law related to merger agreements, will rule in favor of Twitter, forcing Musk to complete the $44 billion acquisition.
The letter added, “The resulting precedent and clear understanding of buyers’ contractual obligations has created a great deal of predictability in this sphere.” The court has given a five-day trial period in October, and Einhorn seems to like the “risk-reward” associated with the predicament.
The letter further noted, “If it lets Musk off the hook, it will invite many future buyer’s remorse suits. Cynical buyers might contract with targets and then use the threat of litigation and the resulting uncertainty to recut the deal.”
Einhorn, a Tesla (TSLA) bear, has on many occasions spoken about the electric vehicle (EV) maker’s gloomy future. This time he has shown his discontent with Musk by taking the opposite position on one of the most talked about buyout deals.
Notably, in the first half of 2022, Greenlight Capital gained 13.2% vis-à-vis a 20% fall in the S&P 500 index (SPX). Einhorn also noted that he believes the U.S. economy is in a bear market and that his fund is accumulating funds for future investments.
TWTR Stock Prediction
Amid the buyout debacle, the Wall Street community has a Hold consensus rating on TWTR stock based on two Buys and 16 Holds. The average Twitter price target of $39.89 implies a 2.5% downside potential to current levels. Meanwhile, the stock has lost 4.2% so far this year.
Hedge Funds Are Negative on TWTR
Despite a couple of hedge funds increasing their stake in TWTR lately, TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Twitter is currently Very Negative. This is based on the activity of 20 hedge funds decreasing their cumulative holdings of TWTR stock by a whopping 15.1 million shares in the last quarter.
Ending Thoughts
Einhorn is popularly known for his economic and stock market predictions. Meanwhile, many hedge funds have built a new position on Twitter following the decision to fight in court. The Musk-Twitter saga has seen several long and interesting twists and turns, and only time will tell who takes the win in court.
Notably, Twitter recently posted weaker-than-expected second-quarter results. The Musk buyout deal continues to remain an overhang on the Twitter stock, which is already facing tremendous pressure to perform amid the weakening advertising demand and dulling subscription business.
