Several large hedge funds have created massive short positions in Novozymes ahead of the expected merger, while at the same time buying up Chr. Hansen shares in order to speculate on the spread in the exchange ratio between the two shares, writes Danish daily Børsen, referring to the fact that 11% of the shares in Novozymes have been lent for short trading.

Most notable is the investment manager Davidson Kempner, which has built up a short position in Novozymes of 4.85%, corresponding to shares worth just over DKK 3bn (USD 426m), while the managers have an ownership stake in the merger partner of 5%, Børsen writes.

According to Jens Larsson, portfolio manager at the Danish hedge fund St. Petri, this is, by all accounts, a classic hedge fund feint.

Here, the hedge fund goes in and shorts the acquiring company in a merger, while at the same time buying up the prey - the company to be acquired - in order to trade in the price difference, Børsen writes.

When the merger goes through, Chr. Hansen’s shareholders will receive 1.53 new Novozymes shares. 

In Tuesday’s trading, the Novozymes share closed at DKK 293.2, while Chr. Hansen closed at DKK 443.60. The exchange ratio means that Chr. Hansen’s current per-share price only amounts to DKK 289.93.

(Translated using DeepL with additional editing by Kristoffer Grønbæk)