NQ Mobile Inc (ADR) (NYSE:NQ) received a bid from Chinese firm Bison Capital, and Wall Street now seems unconvinced that it’s real even though investors were initially thrilled. Today Muddy Waters founder Carson Block, who kicked off the controversy about NQ last year, appeared on Bloomberg TV to talk about the offer and whether he thinks it’s legit.
Is the bid for NQ Mobile real?
Bison Capital (not to be confused of the U.S.-based firm of the same name) offered $9.80 per share for NQ Mobile Inc (ADR) (NYSE:NQ). Short-sellers have noted that it seems a bit odd to make such a high bid for a company that has demonstrated so many problems just releasing audited financial statements. So is the bid real or not? Block weighed both sides.
“On one hand, maybe this is a real bid,” he told Bloomberg TV. “On the other hand, it’s pretty odd that this bid would be real given that over the past few months, a number of bad things have happened to the company that don’t exactly scream ‘buy me.'”
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Block thinks NQ Mobile is worth less than $1 a share and questions whether Bison Capital is aware of what the company is truly worth. He called the Chinese firm’s bid “way too high.”
NQ Mobile’s auditing problems
The short-seller took us through a history lesson of what’s happened to NQ Mobile Inc (ADR) (NYSE:NQ) so far. He essentially said the company has some “data tampering” problems and that it had to tamper with the data to get a clean bill of health. He notes that the chair of their audit committee resigned without warning, and then NQ fired auditing firm PricewaterhouseCoopers because it did not issue an audit opinion.
PwC had said that it wanted some of the data that had been deleted from NQ Mobile’s devices but also said that if it received that data, it might not be able to rely on what management had to say and might have to resign. As a result, Block said the whole thing is just odd, adding that it’s pretty “strange” to receive a “bona fide bid” because of what all has been happening.
Situation at NQ Mobile may be worse than believed
He noted that NQ Mobile Inc (ADR) (NYSE:NQ)’s own investigation committee drew up a report but that the Chinese company never released the full report. Instead, it just issued a press release, and Block said the company didn’t offer any evidence to support the committee’s findings of no evidence to support his fraud allegations.
The press release included a statement buried in it that indicated that investigators had found “substantial” amounts of data missing from NQ Mobile’s devices and that they didn’t think management’s explanations were credible. He again reminds us, however, that the company itself put out the press release and said that the wording of this part of the press release was probably part of a “back and forth” with the law firm representing the company.
“It’s probably a lot worse than what that wording makes it sound like, but we just don’t know because we don’t have the report,” Block said.
NQ Mobile and the China fraud world
The interviewers then asked Block to explain the bid NQ Mobile Inc (ADR) (NYSE:NQ) received from Bison Capital. He said there are many examples of this sort of thing in “the China fraud world.” He said even some companies that were investigated by the Securities and Exchange Commission and that faced regulatory actions were bought out, calling it “a pretty strange world in many respects.”
However, he also sees some “atypical” aspects of this bid Bison Capital made for NQ Mobile. He said most of the bids for companies that are suspected of being frauds are made by their chairman or by a group led by the chairman. He added that usually private-equity firms are involved, and there’s debt financing. In NQ’s case though, management doesn’t appear to be participating and there’s been no discussion of any financing. As a result, he said he doesn’t know what to make of this bid.
Despite this, he remains short on NQ, although he added that “much stranger things have happened.”
More China frauds?
Block is considered by many to be an expert on Chinese frauds, and he predicts that the SEC is going to have a “major headache” in a few years with them. He says if NQ Mobile is allowed to get away with what he says it has done, the headache is going to be worse. He called the company a “poorly executed fraud” and that if it can escape the scrutiny, “this throws the door open to more fraudulent listings.”