NEW YORK (Reuters) - Billionaire investor David Einhorn’s bet against Keurig Green Mountain Inc was a big winner just last week, but the K-Cup maker’s sale of itself to JAB Holding Co has dealt him a blow.
Einhorn, whose Greenlight Capital was down more than 20 percent in the first 11 months of the year, said in October that his position in Keurig was, “So far, our third-biggest winner this year.”
He said, in his fund’s third-quarter investor letter, dated Oct. 21, that Greenlight had borrowed and sold an unspecified number of Keurig shares for an average price of $102.08 each. The stock last traded at that level in May.
For instance, had Greenlight bought and returned the borrowed shares in October, when they were trading between $40 and $50, it would have made tidy profit: between $50 and $60 a share.
Einhorn has not disclosed whether he has covered his short positions at any point.
Investors who take short positions borrow stock and then sell it in hopes of being able to buy it back at a lower price later. They then return the stock to the lender and pocket the difference.
With JAB’s purchase of Keurig for $13.9 billion, that profit shrank dramatically. After the deal was announced on Monday, Keurig’s shares skyrocketed 72 percent to close at $88.89, leaving Einhorn ahead but nowhere near where he had been.
A spokesman for Greenlight Capital, which has $10 billion in assets under management, declined to comment.
Keurig has captivated the hedge fund community for years. Many investors believed the coffee pod maker could not sustain its sales growth, especially as it faces increased competition. By the middle of November, funds had sold 14.1 million shares short.
“This has been one of those battle ground stocks and investors have had a variety of swings at it with both the longs and the short having been able to make money on it depending on when they pulled the trigger,” said Herb Greenberg, a partner at short-biased independent research firm Pacific Square Research.
In November 2014, around the time Keurig Green Mountain’s stock was peaking, Einhorn said in a letter to Greenlight’s investors that he had closed out the rest of his short position. While Einhorn made it clear he had done so long before the stock’s high, it had still been a painful episode. It would be “tempting to write an entire book on our experience with this ultimately unsuccessful short,” he wrote in a quarterly report.
Keurig, which makes K-Cup single-serve coffee pods, said on Monday that an investor group led by Germany’s JAB would buy the company for about $13.9 billion. The deal, pitched at a rich 78 percent premium to Keurig’s Friday close, is the latest by JAB as it seeks to become a formidable competitor to world coffee market leader Nestle SA.
For Einhorn’s investors, including pension funds, endowments and wealthy individuals, the Keurig news is bound to bring up more frustration with a manager who has long reigned as one of Wall Street’s best stock pickers, with an average annual return of 20 percent for nearly two decades.
But with this year’s losses putting Greenlight on track to post its second-ever down year, investors expressed concern about the manager’s ability to construct his portfolio. “His longs aren’t working and his shorts aren’t working,” said an investor who requested anonymity because the fund is private.
Keurig’s rise, however, has helped some investors, including Eminence Capital, which owned 3.7 million shares at the end of the third quarter.
Mutual funds Fidelity Investments, T. Rowe Price and Vanguard were the biggest investors in Keurig.
Reporting by Jennifer Ablan and Svea Herbst-Bayliss; Editing by Lisa Von Ahn and Steve Orlofsky