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Apr 4, 2017

S3 BLACKLIGHT: Panera Bread Takeover Rumors Burn Short Sellers

Panera Bread Company A (PNRA US) was up 7.93% yesterday on a Bloomberg report that it is considering selling itself after receiving takeover interest from an unidentified buyer. PNRA is up $20.76, to $282.63, blowing past its average analysts target price of $256.

Short sellers have been slowly accumulating positions in PNRA since the beginning of 2017 with short interest now up $435 million for the year, or 87%, to $937 million. Short interest had averaged $521 million in 2016 and traded in a relatively narrow range of $465 - $635 million for the second half of the year. Short conviction picked up in 2017 and broke through the $700 million level for the first time in February and $800 million in March. Short interest continued its $100 million per month climb by breaking through $900 million on the first trading day in April.

Short sellers were down 5.47% in 2016, losing $28.5 million on an average short position of $521 million. With PNRA rallying almost 38% in 2017, short sellers have incurred a much larger loss this year. Including today’s price move, short sellers are down $245 million, on an average short position of $687 million for a negative return of 35.64%.

There is still plenty of stock left to borrow in PNRA, so there is very little chance of a short squeeze based on stock loan recalls. But with the stock up 38% in just over one quarter, short sellers may be ready to close out their positions if PNRA’s stock price goes against them much more. But if there is a quick negative rebound from this abrupt price move, I would expect short sellers to increase their positions and try to quickly recoup some of the quarter billion of losses they incurred over the last three months. If no potential PNRA suitor shows up in the near future, we should expect a spike in short sales to grease the skids for slide back down to $250.

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Head of Research, S3 Partners
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