3 ms·
> A PE takeover is the signal that you no longer need to hedge those shorts; the company, loaded with the debt used to purchase it, will soon go bankrupt, and y
by fiprofessor 3y ago
> A PE takeover is the signal that you no longer need to hedge those shorts; the company, loaded with the debt used to purchase it, will soon go bankrupt, and you will be absolved of closing your short positions, for all practical purposes.
I think it's just the opposite: you'll be forced to close your short position when the PE company buys. When PE firms "take over" a public firm, they generally take it private, and the takeover involves buying all outstanding shares, typically at a premium over current share prices.
- underlipton 3y agoI don't know if that's necessarily the case, in practice. Aside from the cases where a PE firm does keep the company public, there's at least one case where short-sellers weren't made to close out their positions when a company was taken private (Next Bridge Hydrocarbons, if you're curious).
- robertlagrant 3y agoHow did that work? The company became privately owned, but somehow someone was still betting on the price of some public shares in that company? How's that possible?
- underlipton 3y agoIIRC, public trading was halted several days early due to an "extraordinary event." It was never restarted, CUSIP was removed a few days later. Short positions weren't closed and long positions are sitting in brokerage accounts.