ADT Corporation, Groupon – two massive short squeezes yesterday By: Sam Walker, Financial Markets Enthusiast, Contributor to investbrain.net
Short Squeeze #1 – ADT Corporation, +48%
ADT Corporation’s stock rose yesterday following the announcement that private equity firm Apollo Global would be acquiring the company for $42 a share in cash, an enormous premium over the company’s previous close. ADT had one of the highest short interests heading into Tuesday with Bloomberg estimating that 21% of the public float was sold short and therefore the news resulted in one of the most painful short squeezes we’ve seen in a while. With a deal on the table and a definitive agreement signed, this is a situation where the shorts have lost – to remain short ADT without a hedge or arbitrage position would be quite brave (and likely idiotic) especially given the fact that the stock closed 5.6% below the offer price.
Short Squeeze #2 – Groupon, +41%
Groupon is a different story. Groupon’s stock rose 41% following the announcement that Chinese eCommerce giant Alibaba had acquired a stake in the company leading to a significant short squeeze as the company had 18% of the public float sold short heading into Tuesday. The move is probably the most significant short squeeze we’ve had since Oprah dished one out last fall to the holder’s of Weight Watchers (we discussed here). We see two possible explanations for the extreme move both of which are exaggerated by the high short interest. The first is obvious – some investors are concluding that Alibaba taking a stake in the company provides a floor on Groupon, essentially granting a put option to holders of Groupon stock in addition to creating the potential for a take-out at some point in the future. The second, is the fact that Groupon just had one of its best quarters in recent years last week. The company reported revenue and EBITDA ahead of consensus expectations resulting in a painful short squeeze last Friday.