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Musk’s Twitter Proposal to Take Tesla Private Is a Short-Seller’s Nightmare

For the second time in months, David Einhorn’s Greenlight Capital has bet against a company that became a possible takeover target.

Telsa founder Elon Musk tweeted Tuesday that he is considering taking the publicly traded company private at $420 per share, stressing “funding secured.”

That would be a short-seller’s nightmare: the company whose stock they are betting against winds up getting taken over, generally sending shares soaring.

Indeed, Tesla’s stock surged more than 8 percent at one point after Musk’s tweet. It was up more than 7 percent to $367.25 when trading was halted late afternoon. The stock subsequently resumed trading and closed up 11 percent at $379.57, rewarding investors with long positions but rocking the shorts.

Tesla has been the most heavily shorted stock in the U.S. for some time, according to S3 Partners, a financial technology and analytics firm. 

David Einhorn’s Greenlight Capital is among the hedge funds short Tesla, and has been for several years. Almost every quarter, Greenlight devotes a portion of its client letter to reiterating why it thinks the stock is vastly overvalued.

Tesla, however, is the second company this year that Greenlight is heavily short and has become the target of a possible or real takeover offer.

In May, Paul Singer’s Elliott Associates offered to acquire health care software company Athenahealth for $160 per share, a 27 percent premium to the stock’s previous close at the time. Greenlight has been short the stock for several years.

Greenlight did not respond to a request to comment.

In the case of Tesla, Einhorn has plenty of company among investors who think the stock is too high.

[II Deep Dive: Tesla Continues to Thwart Short-Sellers]

At the beginning of August, Tesla’s short interest stood at $10.53 billion with 35.33 million shares shorted, or 27.88 percent of its float, according to S3 Partners. “Short-sellers continue to have conviction in Tesla underperforming over the longer term,” it added in an August 1 report.

As Institutional Investor has previously reported, several hedge funds have had bets against the stock, including Greenlight, Anthony Bozza’s Lakewood Capital Management, Jim Chanos’s Kynikos Associates, and Nathaniel August’s Mangrove Partners.

Mangrove refused to confirm or deny a short position.

When Lakewood posted a 4 percent loss for the first half of the year, Bozza blamed his short position in Tesla, among other losing bets, for his setback, according to his second-quarter letter obtained by II.

Likewise, Greenhight’s recently published second-quarter letter devoted three paragraphs to explaining why the company is not how bullish investors present it. “The odd thing is that while investors claim to be interested in the long-term growth of TSLA (as the valuation certainly can’t be supported by the current loss-making enterprise), the company is focusing investors on very short-term goals,” the letter stated. 

Notably, one is hard-pressed to find a hedge fund with a significant long position in Tesla, according to regulatory filings. At the end of the first quarter there was no apparent hedge fund — at least none with notoriety — that disclosed a sizable position in the shares. In a week or so, funds will begin disclosing their holdings as of June 30. 

At the Sohn Investment Conference in New York in August, Benchmark general partner Bill Gurley, who was talking up tech stocks, told the audience, “Elon [Musk] makes it too risky to own the stock.” He suggested they look at Tesla’s bonds, instead. 

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