Tender Offer Threatens Squeeze on Topix 500’s Most-Shorted Stock

Tsuruha Holdings Inc. has become one of the most heavily shorted stocks in Japan as investors position for its tender-offer-driven rally to fade. But analysts warn that this strategy may end in a short squeeze if the drug store operator’s earnings beat expectations.

Short interest in Tsuruha was 24.9% of free float on Thursday, the highest in the Topix 500 index. This buildup in bets that the shares will fall follows a roughly 60% rally this year to ¥2,800, driven by the company’s merger with Aeon Co.-owned Welcia Holdings Co.

Nobuhiko Kuramochi, vice president at Parasol Research Institute, said if earnings turn positive and the stock rises, particularly at a time of reduced liquidity, investors who had been betting on a drop may be forced into costly purchases.

Short sellers borrow shares and sell them, hoping to profit by buying them back later at a lower price. The strategy backfires when the shares rise and they have to cover the short position by purchasing them at a higher price.

Aeon’s stake in Tsuruha is expected to rise to 50.9% from 41.38% following its ongoing tender offer at ¥2,900 per share, which represents roughly a 30% premium to the one-year average price of ¥2,236.2. Two days after the tender closes, Tsuruha is scheduled to report earnings — a potential catalyst for a share rebound and sudden short covering.

“If the company posts really strong results, investors will rush to buy back the shares, and the stock can surge very quickly,” said Takehiko Masuzawa, head of equity trading at Phillip Securities Japan. “If only around 50% of the shares remain in free float, the market impact is naturally going to be significant.”

Still, some see a short squeeze as unlikely, expecting weak earnings as escalating China–Japan tensions dent inbound tourism, which in turn weighs on retail sales.

“The market may already be pricing in the view that there is little chance of any significantly positive surprise,” said Rieko Otsuka, a strategist at MCP Asset Management Japan. Otsuka added that she sees limited risk of a rapid short-covering rally.

This article was generated from an automated news agency feed without modifications to text.

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