Steinhoff International Holdings Collapses, MiMedx Next?

Steinhoff International HoldingsSee page for author [Public domain], via Wikimedia Commons

The collapse of Steinhoff International Holdings rightly grabbed headlines this week, as an admission of accounting failures, the departure of its CEO, and an activist short seller conspired to deliver what a trickle of information had previously failed to achieve. Since Wednesday, the market capitalization of the South Africa-headquartered retail roll-up has utterly collapsed. At the end of trading Thursday, its share price was down from around €3 on Tuesday to €0.70.

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To put that into perspective, anonymous short seller Viceroy Research said that based on its belief that the company would have to consolidate what it considered to be related party entities, the stock price should be €1.29.

Markets were clearly reacting not just to the short report, but to their own mistake in owning Steinhoff when, as the Wall Street Journal put it, the “accounting blowup… was hiding in plain sight.” Given the high short interest before Wednesday, a scramble to cover may have contributed to the collapse. It is a wonder no other activist short seller saw the opportunity.

For Viceroy, the timing was evidently perfect. Activist Insight Shorts – our dedicated database of activist short sellers – records two companies since 2012, Tech Pro Technology Development and Green Innovations, that fell more than 77% in the week after a short report. Even assuming a recovery from the bottom (and Steinhoff fell on two consecutive days following the short, suggesting we might not be there yet), Activist Insight Shorts has only 14 campaigns where the damage was more than 60% at the end of a week, out of a total 1,348 campaigns.

The remarkable thing about Viceroy’s web post is that the short seller has recently been ruthlessly focused on what it considers another fraud, U.S.-based biotech company MiMedx. There, Viceroy has been blogging furiously since September – it apparently stopped counting after its 14th posting – and has been in a taunt-and-response pattern with the company, which denies the allegations and is suing another short seller whose identity it believes it has uncovered.

MiMedx has at times climbed as much as 6% above its pre-campaign level (it is currently down 13%), highlighting that these campaigns are as often a marathon as a sprint. This week’s Muddy Waters Research target, OSI Systems, fell as much as 30% on day one and clawed back 7.7% on day two.

Anonymous short sellers usually struggle to get coverage in newspapers of record but outperform their known peers, probably because their targets are often smaller companies. Incidents like this, at a much larger target, make them hard to ignore.

Article by Activist Insight

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About the Author

Since 2012, Activist Insight has provided its diverse range of clients with the most comprehensive information on activist investing worldwide. Founded by Nick Arnott and Kerry Pogue with the objective of providing unmatched intelligence to professionals in the global activist investment space, Activist Insight made its entry into the market with online information product, Activist Insight Online. Activist Insight Monthly, the world’s only monthly magazine dedicated to shareholder activism, soon followed, granting its readership access to the thoughts and opinions of key industry professionals, while providing an editorial vehicle for the data trends uniquely aggregated from Activist Insight Online. In 2013, Activist Insight’s sister business, Proxy Insight, was co-founded by Nick Dawson and Nick Arnott.

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