Famed investor Carl Icahn has a significant stake in Twitter (NYSE:TWTR), holding more than $500 million of the social media company’s stock.
Icahn, a well-known activist investor, stands to make a tidy profit now that Elon Musk has acquiesced and agreed to proceed with his takeover of Twitter at the agreed-upon price of $54.20 a share, for a total purchase price of $44 billion. Musk’s acquisition of Twitter could be finalized as soon as tomorrow (Oct. 7) depending on the financing being secured, according to multiple media reports that include The Wall Street Journal.
Carl Icahn, who operates the publicly traded holding company Icahn Enterprises (NYSE:IEP), reportedly accumulated a stake in TWTR stock worth more than $500 million in the past few months. He paid an average of $35 a share for the Twitter stake, according to the media reports. If true, Icahn Enterprises could earn more than $250 million in profits once Musk’s deal to buy the social media company closes at $54.20 per share.
Icahn made an arbitrage bet that Musk’s purchase of Twitter would proceed as planned. Musk formally canceled his offer to buy Twitter in July of this year, citing excessive amounts of spam and bots on the social media platform as the reason he wanted out of the deal. However, Twitter took Musk to court over the matter, and, with a trial scheduled to begin in Delaware Chancery Court on Oct. 17, Musk reversed course and agreed to proceed with the acquisition under the original terms of the deal.
Why It Matters
Carl Icahn calculated correctly that Elon Musk either wouldn’t go through with a trial or he would lose in court and be forced to buy Twitter for $54.20 a share. The media reports also state that Icahn saw the purchase of TWTR stock as a can’t lose proposition as he believed they were worth close to $35 a share over the long term.
However, Icahn Enterprises is not the only firm that bet on the Twitter deal going through under the original deal terms. Other investors, including D.E. Shaw Group and the Third Point hedge fund, also placed sizable bets on TWTR stock in recent months and could reap big profits when the deal closes and investors tender their shares at $54.20 each.
Arbitrage bets are common among deep-pocketed investors. Another famous investor, Warren Buffett, has accumulated more than $5 billion worth of Activision Blizzard (NASDAQ:ATVI) stock, betting that Microsoft’s (NASDAQ:MSFT) $68.7 billion takeover of the video game maker will go through at the agreed upon price of $95 per share. That deal is expected to close next year. Currently, ATVI stock is trading at $74 per share.
What’s Next for TWTR Stock
TWTR stock jumped more than 22% to $52 a share earlier this week immediately after news broke that Musk would proceed with acquiring the social media platform. As of yesterday’s close, Twitter stock was trading at $51.30.
Barring any further shenanigans on the part of Elon Musk and the financing coming together, the purchase of Twitter should be completed in the coming days and the social media company will then be taken private. When that happens, Carl Icahn and other big investors will reap the rewards of a calculated risk that paid off.
On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.