Hedge Funds Poised to Be Winners in AT&T-Time Warner Deal

Hedge Funds Poised to Be Winners in AT&T-Time Warner Deal


T -6.20%

victory in its authorized battle to purchase

Time Warner

TWX 1.80%

handed a win to a few of Wall Street’s greatest hedge funds, who had wager the deal would undergo.

The deal has attracted curiosity from massive companies. Hedge funds similar to Highfields Capital, Baupost Group, Sachem Head Capital Management, Paulson & Co., Fir Tree, Oz Management and Pentwater Capital Management all reported holding Time Warner shares in latest regulatory filings.

Shortly after four p.m. on Tuesday, U.S. District Judge Richard Leon accredited the roughly $80 billion merger. The determination despatched shares of Time Warner rallying, a boon for merger arbitragers, who purchase shares of the takeover goal on the wager they’ll rise to the agreed-upon deal worth. The scale of the deal additionally meant it may have had wide-reaching ripples throughout the inventory market, with a ruling towards it doubtlessly inflicting traders to promote shares of different corporations in pending tie-ups.

TCI Fund Management Ltd., the London hedge-fund agency run by

Chris Hohn,

held some 316,500 Time Warner shares on the finish of 2017. By March 31, the agency’s place had surged to almost 7.5 million shares, in accordance to knowledge compiled by S&P Capital IQ. The holding positioned the agency among the many firm’s 20 greatest traders. TCI officers didn’t instantly reply to requests for remark.

Mr. Hohn’s agency additionally has lately accrued a big stake in

21st Century Fox

one other media firm poised for a giant deal, The Wall Street Journal reported in April.

The AT&T-Time Warner deal “is different in that it’s going to affect a lot of other things,” mentioned James DiLeva, managing director of event-driven methods at WallachBeth Capital, earlier than the announcement.

The decide’s determination comes after the tip of the traditional buying and selling day, which concludes at four p.m. Investors are usually ready to purchase or promote shares of corporations in after-hours exercise. Shares of Time Warner jumped after the market closed Tuesday and rose 2.5% Wednesday, in accordance to FactSet. AT&T slipped 5.5%.

Also a winner: Canyon Capital Advisors LLC. The Los Angeles hedge-fund agency made about $27 million in paper earnings on Wednesday and about $40 million in the previous week, in accordance to individuals shut to the matter. Time Warner was Canyon’s third-largest holding as of March 31 of this 12 months, in accordance to securities filings. So far this 12 months, Canyon has made about $75 million from its Time Warner place, in accordance to an individual conversant in the matter.

This particular person mentioned Canyon seen the businesses’ place in the dispute to be stronger than that of the federal government. But if the federal government emerged victorious, Canyon was assured Time Warner’s property are invaluable sufficient to make it an acquisition goal by another person, at a good greater worth, in the close to time period, the particular person mentioned.

The determination additionally marks the conclusion of a 20-month saga that started when AT&T introduced its determination in October 2016. It was anticipated to shut by the tip of 2017 however has confronted regulatory scrutiny and roadblocks. Worries concerning the scale of the mixed firm led the Justice Department to sue in an antitrust case in November. The shares and choices for each corporations have ricocheted on the twists and turns of whether or not regulators would approve the consolidation.

Hedge funds maintain 20% of Time Warner’s shares, in accordance to FactSet, and merchants mentioned the sector’s publicity to the deal is way bigger by means of the usage of choices and different derivatives. Some aren’t even by conventional merger arbitragers.

Buzz concerning the deal ramped up forward of the court docket ruling, Mr. DiLeva mentioned, with the 2 shares changing into a number of the most talked-about in cellphone name conversations with shoppers.

“People have made their bets and stuck to their bets,” he mentioned. They “have always felt that the government had a pretty weak argument.”

In merger arbitrage, the arbitrager usually shorts, or bets towards, the acquirer. Shares of AT&T had fallen 12% this 12 months to $34.35 earlier than Tuesday’s after-hours motion. Time Warner was up 5% to $96.22 in 2018 by means of Tuesday’s closing worth. When AT&T introduced the deal in 2016, it agreed to pay $107.50 a share for Time Warner, evenly cut up between money and inventory.

Investors additionally despatched choices buying and selling right into a frenzy this week earlier than the choice, knowledge from knowledge supplier Trade Alert present. Volumes for each Time Warner and AT&T have been greater than double the day by day common, the info present. The two shares had a number of the most choices contracts excellent amongst corporations in the S&P 500.

Merger-arbitrage hedge funds have returned 1.four% this 12 months, in accordance to industry-tracker HFR knowledge as of June 7, in line with the broader hedge-fund and under the S&P 500’s four% return as of Wednesday.

But it has already been a troublesome 12 months for merger-arb hedge funds. Bets on


troubled sale to

Fresenius SE

price some dearly. Others misplaced cash on


, which walked away from a cope with

Fujifilm Holdings

Others had been dinged by


takeover of

NXP Semiconductors

NV, a white-knuckled trip as


acquired concerned and a deal that’s now being held up by Chinese regulators.

Funds have additionally been burned on massive mergers and acquisitions in the previous few years, together with the nixed twin health-insurance mergers,








, in addition to the failed pipeline tie-up between

Energy Transfer Equity

LP and


s. that ended up in protracted litigation.

Another bump got here when it was reported that AT&T had employed

Michael Cohen,


Donald Trump’s

private lawyer, for recommendation on the deal.

The deal’s competing forces and complexity could have warded off some traders, in accordance to Jim Strugger, derivatives strategist at MKM Partners.

“It’s for the pros more so than the speculators,” Mr. Strugger mentioned. “Do you really want to take the other side of the Department of Justice?”

Write to Gunjan Banerji at [email protected]

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