David Einhorn Hopes for Better 2018 With New Time Warner, Twitter Bets
David Einhorn

Occasional activist investor David Einhorn acquired stakes in Time Warner Inc.  (TWX)  and Twitter Inc. (TWTR)  recently, despite reporting a troublesome 2017 with a 1.6% return for the year, according to a letter to investors obtained by The Deal.

According to the letter, Einhorn's fund, Greenlight Capital, repurchased shares in Time Warner at an average cost of $89.72, after the shares fell following the U.S. Justice Department's November move to oppose the CNN-owner's $85.4 billion sale to AT&T Inc. (T) .

Einhorn said he believes the DOJ has a "weak" antitrust case and that he believes the merger is likely to be approved despite being challenged in court, according to the letter. Nevertheless, he contends that the TWX shares are cheap even if the government prevails and the deal is broken up. He added that Time Warner has several strategic options to create value if the AT&T deal falls apart, noting that TWX suspended its buyback program while the deal has been pending. He added that TWX has become "under-levered."  The comments suggest that Einhorn believes Time Warner could hike leverage and buy back shares if the deal collapses.

Also, Einhorn's fund acquired a "small position" in Twitter, which he believes will close some of a 25% margin gap vs. its social media peers. He believes that Twitter will have a "pitch" to advertisers in 2017 because it has an improved user experience and a "rapid growth' in users and time spent on the site.

The new investments follow a string of problematic short positions in Amazon.com Inc. (AMZN) , Netflix Inc. (NFLX)  and Tesla Inc. (TSLA) , which were all up significantly for 2017. In October, Einhorn said Tesla "does not make money selling cars and Mr. [Elon] Musk shows little interest in profits."

Also, Einhorn described his investment in Rite Aid Corp. (RAD)  as "one of our worst investments" of 2017. He said he expected a Walgreens-Rite Aid deal would pass regulatory muster with store divestitures, which proved to be incorrect. In the letter, Einhorn said he purchased Rite Aid shares at $7.45 a share and exited at $2.78 a share.

In June, General Motors Co. (GM)  investors rejected Einhorn's proxy campaign to split the automaker's shares into two classes by an overwhelming margin, ending a boardroom skirmish that left many stockholders scratching their heads. Nevertheless, Einhorn said in the letter that his GM investment was the fund's "biggest winner" and largest position. He said he believed GM's shares remain "significantly undervalued."

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