Carson Block, founder of Muddy Waters Research, appeared on Bloomberg TV with Stephanie Ruhle and Erik Schatzker today, where he announced his first long position in Bollore. Block said, “The reason that we’re long Bollore…it’s actually really the mirror image of a lot of our shorts in that it has a very opaque corporate structure, but in this case the opacity actually has created a huge arbitrage opportunity.”
On how he found the deal, Block said, “We got contacted by an investor who said we know you like opaque things, complexity. This is one that’s really interesting. And to us it’s a no-brainer. I mean I love this as much as I love the short theses that we’ve published because it’s not where we are sitting here like most long investments or investors would do and saying, well what’s going to happen in the future? We are looking at right now.”
- Block Says Long Bollore Because of Opaque Corporate Structure
- Block Says Bollore Has Fewer Shares Outstanding Than Realized
- Block Says Bollore’s ‘Opacity’ Is Reason To Buy Stock
- Block Calls Bollore ‘The Carl Icahn Of France’
- Block Says Bollore Is A No-Brainer; Per Share Value Higher
Muddy Waters’ Carson Block Takes Long Position in Bollore
ERIK SCHATZKER, BLOOMBERG: When Carson Block speaks, investors listen. From Sino Forest, to Olam International to American Tower, Carson has made headline after headline with his courageous and often controversial calls. He made his reputation as a short seller with a talent for forensic research. Now he’s right back here on Bloomberg Television to reveal his latest position. Carson, let’s get right down to it. What are we talking about?
CARSON BLOCK, FOUNDER, MUDDY WATERS: All right. Well the first thing to get out of the way is this is a long.
STEPHANIE RUHLE, BLOOMBERG NEWS: What?
Carson Block: Yes.
RUHLE: Wait. Carson Block likes something?
Carson Block: I know. Say it ain’t so, but….
RUHLE: You’re a new man. Fatherhood has changed him.
SCHATZKER: Well right. When you told us that you are not a ninja assassin, you are not a ninja assassin.
Carson Block: No. I love everything. It’s — and we are long a company traded in France called Bollore.
Carson Block: Bollore. It’s a holding company. And the reason that we’re long Bollore it’s actually really the mirror image of a lot of our shorts in that it has a very opaque corporate structure, but in this case the opacity actually has created a huge arbitrage opportunity. So people don’t — investors don’t understand really what this corporate structure does. And it looks like Bollore has about 2.5 billion shares outstanding.
Because of this corporate structure, there’s so much circular ownership that, effectively, you have all of this treasury stock that and that’s not being excluded under accounting rules excluded. So the true shares outstanding we estimate are really about 1.1 billion. So that means that the public, instead of owning about 25 percent of this company, actually owns about 52, 53 percent of it. So if you look at it on a net asset value per share basis, which you would do with a holding company that effectively more than doubles what the net asset value per share is. So this is something that we think is worth at least 850 euro.
RUHLE: Let’s just back it up. Let’s just slow this down.
Carson Block: Sure.
RUHLE: It’s a holding company.
Carson Block: Correct.
RUHLE: How exactly do you unlock the value here?
SCHATZKER: How about we spell it first for everybody?
Carson Block: Sure.
Carson Block: Yes.
SCHATZKER: And it’s run by a French billionaire.
Carson Block: Yes, Vincent Bollore, who actually has — he’s known as the Carl Icahn of France. And then Europe has a reputation for not having activist investors. I mean this has been throwing very sharp elbows for about three decades. I mean he has tussled with Lazard. He is on the board of Vivendi now. So he’s actually a very impressive investor. He’s grown….
RUHLE: How did you find him? How did you find this deal?
Carson Block: So we got contacted by an investor who said we know you like opaque things, complexity. This is one that’s really interesting. And to us it’s a no-brainer. I mean I love this as much as I love the short theses that we’ve published because it’s not where we are sitting here like most long investments or investors would do and saying, well what’s going to happen in the future? We are looking at right now. We’re saying this is something where the per-share value is substantially higher than it appears to be.
SCHATZKER: So hang on one second. It’s — I wouldn’t say it’s easy to call out a fraud, but once you’ve identified a fraud, once you believe a company is a zero, or a doughnut or however you prefer to term it, you should feel conviction, right?
Carson Block: Yes.
SCHATZKER: There’s no business there, so I’m happy calling it a short, saying sell this stock. Does it feel harder in any way to call out a long? Do you feel as convinced about Bollore as a long as you did about say Sino-Forest as a short?
BLOCK: Yes, and here’s why. Because generally speaking our research approach we’re looking backwards. So we’re looking at information that companies have disclosed. And when you….
RUHLE: They’re bigger.
Carson Block: Right. And we’re asking is this information reflective of economic reality. Now we’re usually doing from the short side because we are trying to find areas in which the company is misleading investors or lying. In this case we are looking at the historical numbers here, shares outstanding, and we’re saying there’s a problem here. This is not reflective of economic reality. The share count is much too high when you take into account how Bollore owns subs that own holding companies that own Bollore.
RUHLE: All right, but hold on. You want to talk economic reality? This company is smack dab in the center of Europe, which is an absolute garbage storm.
Carson Block: Well maybe even worse, but I have a rebuttal for this. Most of the value, so about eight point, according to our valuation, about EUR8.3 billion is related to its transportation and logistics business. The vast majority of that is owning and operating ports, yes or sorry, operating ports in Africa. Now, yes, I do not like emerging market investments in most cases. I’m very critical of them.
This is a business in Africa that he’s been building for 30 years. It’s kind of a boring business. The economics are great. The EBITDA margins look to be about 40 percent. And there are very, very high barriers to entry and competition. So it’s not — there isn’t this massive blue sky story associated with their logistics business in Africa, which is something we like. It’s just it’s a very steady, good business.
SCHATZKER: What’s the motive? Here’s one thing I always want to know. What’s the motivation?
RUHLE: Hold on, a steady and good business in West Africa, sounds like an oxymoron.
SCHATZKER: There are — well maybe, but