By Emma Pinedo
MADRID (Reuters) - LetterOne Investment Holdings has bought a 3 percent stake in Spanish supermarket chain DIA (MC:DIDA) and has an option to buy a further 7 percent, the fund said on Friday, positioning it to become one of the budget grocery store's biggest shareholders.
Shares jumped 16 percent after the news as short sellers, investors who bet on a falling share price, rushed to buy stock to cover their positions. DIA was the most-shorted stock in Europe, analytics company IHS Markit said earlier this week.
LetterOne, which has offices in London, Luxembourg and New York, did not say how much it had paid for the 3 percent stake or give more details on the time frame of the option to buy a further 7 percent.
LetterOne made the purchase and agreed the option via sister company LTS Investment, it said in a statement.
The 3 percent stake is valued at 97.6 million euros (87.44 million pounds) at Thursday's closing price.
Spain's joint second-largest supermarket chain by sales, spun off by Carrefour (PA:CARR) six years ago, has invested in refurbishing stores and updated shop-floor formats leading to a recovery in like-for-like sales over the past year.
Shares in the company jumped as much as 23 percent before retracing to trade up 16 percent at 6.05 euros.
Letterone's retail division, L1 Retail, agreed to buy Britain's Holland & Barrett health foods chain for 1.77 billion pounds last month.
The retail investment business was launched in December and aims to invest up to $3 billion in retailers that have the potential to become leaders in their markets, it said on its website.
Its advisory board includes a former chief executive officer of German food retailer Lidl and one of the founders of customer data science company Dunnhumby, now part of Tesco (O:TESO).