Another big short campaign tomorrow – this time from our friends at Spruce Capital – What will it be? We do not know (although we think the short is Ametek but are not certain) it sounds very interesting! Sign up for our newsletter to find out tomorrow. Below are some details from an email sent to investors and tweets.
Spruce Point Capital to Expose its Largest Short Idea Ever
Spruce Point Capital Management, recently profiled by ActivistShorts.com as one of the top short-selling investment activists on Wall Street, is pleased to announce we will be releasing the contents of a 140+ page presentation. Our research report will showcase one of the largest companies in America by market capitalization, and a major index component. The presentation will be made public on our website www.sprucepointcap.com. We also encourage our readers to follow us on Twitter @sprucepointcap
We will release our largest short idea ever tomorrow: a 140p powerpoint on one of the largest stocks in America and major index component
— Ben Axler (@sprucepointcap) November 12, 2014
Our report will profile a stock that has almost never missed a Wall St. EPS estimate in over a decade; no one has ever investigated how! — Ben Axler (@sprucepointcap) November 12, 2014
We have collected public documents from over 10 countries, which will critically question how this company’s margins vastly exceed its peers
— Ben Axler (@sprucepointcap) November 12, 2014
We will present evidence that suggests an extremely aggressive financial and accounting strategy may explain its unusual model — Ben Axler (@sprucepointcap) November 12, 2014
While the company received a clean opinion from its US auditor, we have evidence that a foreign auditor raised numerous red flags
— Ben Axler (@sprucepointcap) November 12, 2014
The foreign unit with the red flags markets dozens of its global products. At 2 other foreign units, we have evidence of auditor departures — Ben Axler (@sprucepointcap) November 12, 2014
We unearthed documents formerly available through a gov’t FOIA request that shows years earlier, an insider was raising similar red flags
— Ben Axler (@sprucepointcap) November 12, 2014
All of these red flags exactly match our observations of key changes being surreptitiously made to a very critical accounting policy
— Ben Axler (@sprucepointcap) November 12, 2014
Valuing the company on our Adjusted EBITDA, and assuming it trades at avg peer multiples, gives us a 30 – 50% downside price target
— Ben Axler (@sprucepointcap) November 12, 2014
@ActivistShorts @PresciencePoint Correct, this one is even bigger! :-)
— Ben Axler (@sprucepointcap) November 12, 2014
@ActivistShorts @PresciencePoint Correct, this one is even bigger! :-)
— Ben Axler (@sprucepointcap) November 12, 2014
@ActivistShorts Significantly larger, no comparison
— Ben Axler (@sprucepointcap) November 12, 2014
Spruce Point Capital: The Playbook To Becoming One of the Largest Publicly Owned Stocks in America
If it’s true on Wall St. that the path to an ever-increasing stock price is to deliver consistency of earnings growth, then we’ve found a company that has played the Wall Street game to perfection! In our research, we’ve identified a company that has almost never missed a quarterly Wall Street earnings estimate, and has dispelled any notion that it can disappoint the Street in any economic environment…sound too good to be true…we think so! To manufacture such impressive results, the company has embarked on an aggressive strategy, and created a structure so complex that it appears to escape adequate audit oversight, and cannot even explain critical portions of its own financial results in its SEC filings or on conference calls! We believe its EBITDA margins are 400 – 600 basis points overstated, resulting in millions of illusory EBITDA. With EBITDA margins vastly superior to its peers, no analyst has endeavored to question the basic assumptions behind its business and financial strategy, along with its accounting methods…until now! To support our opinion, we will present never-before-seen evidence of public financial filings from 17 of its foreign business units across 10 countries, all which suggests that its margins and earnings growth are not accurately presented to investors. Portraying itself to the Street as a skillful and seamless operator, we will present clear evidence to the contrary. In fact, we will provide evidence that it appears to have shamefully misled investors about the performance of its largest acquisition ever! Around the same time period, its CFO conveniently “retired,” and equity clawback language in its proxy filing was changed to cover financial restatement for “fraud” or “intentional illegal misconduct.”
Spruce Point Capital: We’ve Scoured the Globe Digging Up Information on This Company; What We’ve Found Shocked Us
As skeptical and meticulous forensic researchers, we’ve reviewed dozens of its SEC filings, press releases, earnings calls, conducted industry and background checks, and reviewed its accounting policies. We’ve also scoured the globe to collect public filings on various worldwide operating entities. While the company receives an “unqualified” opinion from its big U.S. auditor (which it has a cozy multi-decade relationship with), we found an entirely different view abroad! At two foreign units, we found recent auditor departures, and at a third key location that markets many of its global product offerings, the auditor issued a “qualified opinion”! Ironically, the concerns raised by this third auditor exactly mirrored the accounting concerns publicly raised by a brave individual many years earlier! To make matters worse, both the auditor and the individual’s opinions exactly mirrored our own observations about a key component of this company’s accounting policy changes! If you think the company’s board or management team has much invested for your benefit, think again. Echoing our concerns about the accounting and auditing, we note that its long-serving Audit Committee Chairman mysteriously resigned. Furthermore, we’ve even done a background check on its top VP of Audit, and found that the company has misrepresented his credentials as a CPA. In fact, he has not been licensed as a CPA for over a decade! Meanwhile, insiders are dumping stock hand over fist, especially its entrenched Board members who sell just as aggressively as its management! Pretty soon, insiders will be entirely cashed-out, and leave the public saddled with its overvalued stock.
Spruce Point Capital: With Magically Expanding Margins and Earnings, Wall Street Analysts Are Saying “Buy, Buy, Buy”
If you think the sell-side analysts covering this company are piecing together the facts for you in their own research reports…think again! Some sell-side analysts boldly claim the stock has another 25% upside from its current price. We are going to present an even bolder variant view. We believe this company is nothing more than a financially engineered web of opaque and struggling businesses, with reported EBITDA margins that appear to be 400- 600 basis points too high, and being aided by aggressive accounting. Trading at a substantial premium to both its sum of the parts and peer trading valuations, we believe the equity has 30% – 50% downside if you value it on our estimate of Adjusted EBITDA.**
Please mark your calendar as we prepare to release our full report shortly, and thank you for your interest in our work. If you no longer wish to receive future emails from us, you may unsubscribe at the link below.
About Spruce Point Capital Management LLC
Spruce Point Capital Management, LLC is a New York based investment firm founded in 2009. The firm focuses on short-selling, special situations, and value investment opportunities. The firm conducts in depth forensic fundamental research and takes an activist approach to investing. Our research challenges conventional thinking with deep fundamental analysis, analytical rigor, and conclusions rooted with our unique viewpoints. For more information visit us at www.sprucepointcap.com and follow us on Twitter @Sprucepointcap
