This will be longish. I'm starting to come around to the idea that share recalls will (and probably have been) impact stock price. You might remember I previously expressed skepticism based on my experience in dealing with institutional investors - (a) they are very active in voting even routine matters at annual meetings, (b) a squeeze does not appear every year from highly shorted stocks as institutions recall shares to vote them, (c) therefore, this phenomenon must not be very pronounced. I couldn't identify the missing piece.
I think I found it, and its intuitively obvious - the level of interest in the thing being voted on really does matter. I found a scholarly article to back me up: http://www2.lebow.drexel.edu/PDF/Do...rgess_Proxy_Voting_and_Securities_Lending.pdf
The study found that the supply of lendable shares really does restrict prior to the annual meeting record date, and the effect is pronounced when there's a contentious matter put to a vote. Institutions really do care about their duty to vote, but follow the money - it's incredibly expensive for them to recall lent shares as it's an almost riskless cash cow, especially for a name like TSLA. So it better be worth it. A multibillion dollar merger with a growth stock in a young industry is certainly "worth it."
Tesla also has another factor working against institutions' desire to recall shares for routine annual matters - Elon's shares. His voting power probably discourages voting generally as it's damn near impossible to vote down things management wants, no matter what you do. All you need is Elon + a couple institutions to get anything done. Obviously, this is not the case here, since Elon won't be voting.
Moving on to timing. The record date for the vote is the key, and there appears to be leeway in setting it for maximum impact (or not). For anyone who doesn't know, only people that hold the stock on the record date can vote. The record date is announced along with the voting date, usually in a press release after the merger agreement has been signed (this is what's being negotiated currently, along with conducting diligence).
The key here is timing for the PR. I took a random sampling of recent merger vote PRs and results were mixed - (1) some announced a prior record date (e.g., PR was Feb 1, announced a Jan 15 record date for a Feb 15 vote) and (2) others announced a future record date (e.g., PR was Feb 1, announcing Feb 15 record date and a Feb 25 voting date). There appears to be leeway here.
Choice (1) seems like it wouldn't cause a squeeze - it's too late to recall by then because the record date has passed by the time you know what it is. The fear of (1), however, should cause some institutions to recall shares early. This appears to be happening already.
Choice (2) seems like it could cause a squeeze, assuming the institutions didn't already recall in an orderly fashion in anticipation of a possible (1). At a minimum, I'd think a future record date would cause savvy retail investors to recall shares quickly and possibly induce buying pressure as longs buy in to ensure they have a vote. Both drive up stock price. Thus, I expect Tesla to announce a future record date. This could cause an immediate SP spike or otherwise send it north leading up to the record date.
Thanks for doing this research for us. If it indeed has an effect, we should see significant move up of stock price untill the record date.
It also means that those large institutional investors start lending again to short sellers, albeit orderly, right after record date. This should cause equal downward move of stock price.
