BSkyB’s share price has plunged 18 per cent in the past week as merger arbitrage funds, which buy shares in both a target company and its bidder, realised the deal had hit the buffers and sold.
Shares worth at least £350m have changed hands every day for the past week – about 50m shares per day – with the vast majority sold off.
“Funds have been closing off their positions long on BSkyB and short on News Corp, but they would have been hurt on the BSkyB positions,” said ETX Capital senior trader Manoj Ladwa.
US hedge funds Perry Capital, Halcyon Asset Management and Taconic Capital Advisers all sold out as the share price fell from its £8.50 high, regulatory statements show.
“Now that the takeover has officially died, all the M&A hedge fund players have to sell – if they are not out already. Massive volumes of BSkyB shares have traded,” said BGC Partners markets analyst Louise Cooper.
But Cooper said not all sellers would have made a huge loss. The biggest volumes of BSkyB shares were bought at either £7.92, its price on 3 March when culture secretary Jeremy Hunt waved the deal through; or at £7.00, on 15 June last year, when the offer was announced.
Depending on when the funds sold, she said there was still room for them to make a profit before it hit yesterday’s £6.99 closing price (see chart, left).
Other hedge funds have bought back in. Odey Asset Management holds more than 46m shares worth more than £325m at the current price, but said it is holding for growth and not for the merger.