Who are the big winners in Musk's Twitter deal? Merger arbitrage traders

Elon Musk’s decision to revive his $44 billion buyout of Twitter Inc. is shockingly good news for merger investors who continued to bet on the deal closing through months of uncertainty.

After Musk and Twitter agreed to proceed with the deal at the original offer price at $54.20 a share on Tuesday, the social media company’s stock rallied as much as 23%, pushing the spread to its narrowest level since the pair entered a merger pact back in April. 

Tuesday was a “great day for arbs,” said Julian Klymochko, chief executive officer of Accelerate Financial Technologies. The saga closing in Twitter’s favor demonstrates the strength of definitive merger agreements and contract law, said Klymochko, who runs a merger-arbitrage investment fund.

Arbitrage traders make money by betting on mergers agreements, with the potential for millions of dollars in profits if the deals go through. Now, all that’s left is to wait for the agreement to close. The Wall Street Journal reported Carl Icahn made a a sizable profit Tuesday after amassing a Twitter stake worth over $500 million in the past few months, citing people familiar with the matter. 

The contentious deal has sent Twitter’s stock on a rollercoaster ride in recent months. It surged as high as $54.57 in April as the deal appeared to be moving to closure, and as low as $32.52 in July after Musk sent a termination letter in an attempt to back away from the buyout proposal. The stock rebounded again last month as a judge heard arguments in Twitter’s lawsuit aimed at forcing Musk to complete the transaction.

“For arb traders, it’s overall a good outcome,” said Aaron Glick, a merger arbitrage specialist at Cowen & Co., which makes markets and is long common stock and equity options in Twitter.