May 19, 2022

Avis shares skyrocket in meme-like rally, hedge fund possibly grossing billions

The logos of the Avis and Budget car rental companies can be seen outside Paris Charles de Gaulle Airport in Roissy-en-France during the coronavirus (COVID-19) epidemic in France on May 19, 2020. REUTERS / Charles Platiau / File Photo

Nov. 2 (Reuters) – Shares of Avis Budget Group Inc (CAR.O) surged on Tuesday as retail investors rushed for a stake in the heavily loss-making US car rental company, giving a boost $ 5 billion possible to activist hedge fund SRS Investment Management, which has been the firm’s largest investor for a decade.

Avis won after quarterly results beat Wall Street estimates. Avis executives also said the company is in talks with manufacturers about its intention to add more electric vehicles to its fleet.

The stock closed 108% higher at $ 357.17 following several trading stops for volatility, its biggest daily percentage jump according to Refinitiv data dating back to the 1980s. $ 545.11 earlier in the session. This pushed the Dow Jones Transportation Average (.DJT) to an all-time high.

The sharp rise in Avis shares hinted at the rally in GameStop (GME.N) shares and other so-called memes earlier in the year, in part thanks to the coordination of retail investors on Reddit’s WallStreetBets and others. online forums.

About 21% of Avis Budget’s floating stocks are short, according to data from S3 Partners, increasing its vulnerability to a phenomenon known as a short squeeze, where investors betting against a company are forced to unwind their positions. after a rise in the share price.

Short sellers suffered $ 4.29 billion mark-to-market losses, reaching $ 481.50 in Tuesday’s session, S3 Partners chief predictive analyst Ihor Dusaniwsky said.

“The short squeeze could force some existing short sellers to close some or all of their Avis positions.”

However, one of the winners appeared to be New York-based hedge fund SRS which held a 27.7% stake in Avis, according to a regulatory filing dated September 10. This stake included 18.4 million common shares of Avis and exposure to 11.4 million plus shares through cash-settled share swaps which is equivalent to approximately 16.3% of the outstanding shares. of ordinary shares, the record showed.

The gain of the hedge fund, founded in 2006 by Karthik Ramakrishna Sarma, former CEO of Tiger Global Management, had already been reported by the Financial Times.

Based on the Avis share closing price on Tuesday, SRS’s position in the company, including its derivative holdings, would be worth $ 5.53 billion more than it was at Monday’s closing price. of $ 171.46, according to a Reuters calculation.

SRS declined to comment for this story.

According to the Financial Times, the fund entered into a standstill agreement in February 2020 that placed three of its candidates on the Avis board of directors. Due to its representation on the board, the deal prevents SRS from selling its shares during blackout periods, which typically end shortly after the results are released, the FT reported.

Avis was among the hottest stocks on Tuesday with a 608% jump in message volume on investor-focused website, indicating interest from small investors. Shares of rival Hertz (HTZZ.PK) jumped about 7%, reversing earlier losses.

Avis’s total revenue jumped 96% to $ 3 billion in the third quarter from a year earlier, as a higher number of COVID-19 vaccinations encouraged people to get back on the road. Excluding items, the company earned $ 10.74 per share.

Analysts had expected earnings of $ 6.52 per share on revenue of $ 2.71 billion, according to IBES data from Refinitiv.

Almost 24 million shares changed hands, easily making it the most active trading session for the company this year. Avis shares pushed the Dow Jones Transportation Average (.DJT) up 6.2%.

Reporting by Medha Singh in Bengaluru and John McCrank in New York; additional reporting by Ira Iosebashvili and Megan Davies; Editing by Krishna Chandra Eluri, Marguerita Choy and Grant McCool

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