Greenlight Capital David Einhorn said in a recent conference call that he is cautious about long positions and, for the first time since 2006-2007, his shorts may be lost to aggressive mergers and acquisitions activity.
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Greenlight Capital returned 8.1% for the second quarter and 7.3% for the year so far. Its Apple and Micron positions are performing well, quashing rumors that Einhorn felt that tech stocks were in a bubble. On the call, he clarified a remark he made in the first quarter that momentum tech stocks seemed to be in a bubble; Apple and Micron are doing just fine. New long positions include Altice SA, Resono Holdings and SunEdison. Einhorn admitted that it wasn’t easy looking for viable long positions in the current environment.
Concerning the disappearing shorts, recent vigorous consolidation means that short positions are at risk of wreckage if they are taken over. This happened when Greenlight short Medtronics was bought, and the trend is rearing its ugly head again.
The problem is, Einhorn explained, is that good shorts often make good takeovers. Many of these leveraged buyout deals are not long-term investments; basically, the idea is to buy weak companies, tweak them a bit, and sell them at a profit. Boards are only too happy to unburden themselves of a poorly-performing company in a leveraged buyout deal and vote in favor of takeovers.
Another short position that has given David Einhorn headaches recently was his bet against Keurig Green Mountain. Shares soared when Coca-Cola bought a stake in the company to develop an individual-serve cold beverage machine, but there are many skeptics who think this device will be nothing more than an expensive gimmick. Einhorn in the first quarter said the Keurig Green Mountain was the “only significant loser” among his short positions, but that was before this quarter’s fear that his shorts could get eaten in a takeover.