Elon Musk's decision to revive his $44 billion buyout of Twitter Inc. is a shocking news for investors who have been bet on the deal closing through months of uncertainty.
After Musk and Twitter agreed to proceed with the deal at the original offer price of $54.20 a share on Tuesday, the social media company's stock rallied by 23%, pushing it to its narrowest level since the pair entered a merger pact back in April.
Julian Klymochko, Chief Executive Officer of Accelerate Financial Technologies, said Tuesday was a great day for arbs. Klymochko, who runs a merger-arbitrage investment fund, said the saga closing in Twitter demonstrates the strength of definitive merger agreements and contract law.
Arbitrage traders make money by betting on mergers agreements, with the potential for millions of dollars in profits if the deals go through. Now all that is left is to wait for the agreement to close. People familiar with the matter said Carl Icahn made a sizable profit Tuesday after amassing a Twitter stake worth over $500 million in the past few months.
The contentious deal has sent Twitter's stock on a rollercoaster ride in recent months. It went up as high as $54.57 in April as the deal appeared to be close to closing, and as low as $32.52 in July after Musk sent a termination letter in an attempt to back away from the buyout proposal. The stock rebounded last month after a judge heard arguments in Twitter's lawsuit aimed at forcing Musk to complete the transaction.
Aaron Glick, a merger arbitrage specialist at Cowen Co., said it was a good outcome for arb traders and is long common stock and equity options in Twitter.
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