Two Sigma Discloses Then Retracts $4.6B Short in Pernod Ricard


Two Sigma Investments gave us a scare today. One of the largest hedge funds in the U.S., nearly made the world’s biggest announcement ever, that it does not like wine, and that it most certainly does not like Pernod Ricard SA (EPA:RI) (PINK:PDRDF), the French producer of all kinds of alcoholic beverages. It was a shock to see that Two Sigma was making a $4.6 billion bet against Pernod Ricard SA (EPA:RI) (PINK:PDRDF) by shorting 14 percent of the company, breath again, 14 percent!!

Two Sigma’s allocation was unprecedented for a short disclosure with l’Autorité des marchés financiers (AMF) in Paris France and for a reason. At 14 percent and if acquired yesterday, the short position would have amounted to approximately $4.6 billion, even Bill Ackman has not bet this much against Herbalife Ltd (NYSE:HLF). The position seemed too unreal to be true and it was. Shortly after the filing, the hedge fund retracted its position entirely.

Although the short position was registered with the AMF in Paris France, they had not reviewed the position (although that is common with many AMF disclosures) and were closed. Pernod Ricard SA (EPA:RI) (PINK:PDRDF) has been a long time holding of the famous investor, Tom Russo. His hedge fund – Gardner Russo & Gardner holds 3,711,633 shares of the distiller as of Dec 31 2012. Moreover Pernod Ricard has received bullish reviews from other investors as well, Charles de Vaulx of International Value Advisers has praised the company‘s astute history of acquisitions and smart management.

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Pernod Ricard SA (EPA:RI) (PINK:PDRDF), valued at $33 billion on Euronext Paris, fell dramatically in trading yesterday when it reported softer revenues in China. The share price dropped 4.4 percent, the biggest decline in 52 weeks. The company still forecasts sales growth in Asian but the y-o-y increase is expected to be lower. At market’s close Pernod Ricard SA (EPA:RI) (PINK:PDRDF) was up 2.1 percent today, gaining half of what it lost yesterday.

It is still unclear why the filing was ever registered with the AMF, or who was at fault. Mistakes are made with regulatory filings but it was unusual for a filing that big to be retracted especially in its entirety (as opposed to correcting to a smaller stake). It seems that big hedge funds (or regulatory agencies) make big filing mistakes.

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