Business

Advice For Jorge Paulo Lemann; Germany Attacks Short Sellers

Whitney Tilson’s email to investors discussing networking on the slopes; Enrique Abeyta’s advice for Jorge Paulo Lemann; Germany’s attacks on short sellers; Purdue Pharma’s possible bankruptcy; and massage.

Whitney Tilson advice for jorge paulo lemann

I’m about to board a flight to Jackson, WY to attend Carlo Cannell’s Officers and Directors Conference and ski my brains out at Jackson Hole and Grand Targhee for the next five days. The conditions are supposed to be AMAZING! If you’re around, let me know…

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1) There can be good networking on the slopes – in fact, that’s how I met my analyst Kevin DeCamp. Funny, random story: I was skiing here four years ago and was on a chairlift with two buddies and a snowboarder (Kevin) who’d joined us from the singles line.

I was talking with my friends about stocks when, nearly at the top, Kevin said, “Excuse me, are you Whitney Tilson?”

I nearly fell off the chairlift because it was a very cold day so I was wearing a helmet, face mask and goggles – not even my mother would have been able to recognize me.

“How did you know that?!” I exclaimed.

“I recognized your voice – I’ve seen you on CNBC,” he said. (He’d also watched some of my YouTube videos, he later said, most notably my two-hour Introduction to Value Investing seminar I did at UVA in 2008.)

So we started chatting and he skied with us for that day and the next.

I expected him to be some sort of day trading fool, but nope: he owned Berkshire Hathaway and other value stocks. He was a CAT scan technician by day, but a passionate, self-educated investor in his spare time.

We kept in touch and he made himself so useful, sending me articles, collecting information about stocks I was interested in, etc. that I ended up hiring him and he’s been working part-time for me ever since.

2) Brazil Journal recently interviewed Enrique Abeyta, who offered some sobering advice for Jorge Paulo Lemann: Enrique Abeyta has four pieces of advice for Jorge Paulo Lemann. The article makes reference to Enrique's presentation at our first shorting conference on May 3 last year, where he not only described his short-thesis on AB InBev but also warned about Kraft Heinz (KHC) and Disney (DIS). I've posted the 15-minute video of his brilliant presentation here (he mentions KHC and DIS starting at 13:56) and his slides here. Excerpt:

Abeyta's main thesis is not exactly new: technology has broken entry barriers and will structurally pressure margins in the consumer package goods (CPG) industry. What’s new is that Abeyta thinks the process is just beginning.

In his talk, Abeyta praised Jorge Paulo Lemann, who days earlier had confessed to feeling like a ‘terrified dinosaur’, but said that the mere acknowledgment of the problem would probably not be able to change the fate of Lemann's companies.

“If Jorge Paulo Lemann called me today, I would tell him four things,” Abeyta told the Brazil Journal. “1. You're screwed. Accept it. 2. Create a Create an SPV (Specific Purpose Vehicle) and bet on the downfall of your competitors’ stocks. At least take some advantage. 3. Create a $1 billion venture fund and embrace disruption radically. The next $20 billion brand will come out of there. 4. Finally, start selling your assets. Transfer your problems to others."

For Abeyta, the challenges faced by big brands offers “a generational short opportunity”

Sporting a ponytail, badly trimmed gray beard and tattoos, Abeyta does not look like a financial-market guy. But it was his record of 25 years on Wall Street that gave him a unique perspective on what is happening with the world’s major consumer brands.

3) Carson Block with a brilliant essay about Germany’s disgraceful and misguided attacks on short sellers who are exposing frauds there: Why Elon Musk Should List Tesla Shares In Germany. Excerpt:

Here’s an idea for Elon Musk: Instead of taking Tesla private, he should list his company’s shares in Germany. Elon probably isn’t aware that in Germany he can have regulatory carte blanche, and can tweet anything he wants with no retribution – no matter how fraudulent. Moreover, short sellers and press critics would likely be investigated the moment they speak out. Call that hyperbole, but these days German regulators don’t seem to care much about corporate fraud - in fact they’re acting more like Russia and China in trying to shoot any messengers who dare criticize a German company.

At least regulators in the U.S. have fined Tesla $40 million for alleged securities fraud and mandated that all of Elon’s tweets be reviewed before he publishes them. He appears to be ignoring regulators, but they’re not backing down. In Germany, Elon could probably tweet “funding secured” every day and get away with it.

Right now, German authorities are subjecting journalists, short sellers and analysts to criminal investigations for exposing alleged fraud and money laundering at one of their now largest public companies (by market cap). That company, a payment processor called Wirecard, until recently had a market cap over €20 billion. As the operator of a global payments business, it should be responsible for ensuring illicit money from criminals and terrorists are kept out of its network, which is a gateway to the global banking system.

4) I was glad to see this: Purdue Pharma Preparing Possible Bankruptcy Filing. Excerpt:

OxyContin maker Purdue Pharma LP is preparing a possible bankruptcy filing as it seeks to contain liability from hundreds of lawsuits alleging it fueled the nation’s opioid epidemic, according to people familiar with the matter.

Its restructuring advisers now include AlixPartners LLP, a New York-based consulting firm known for its restructuring work, according to a person familiar with the hiring. The company last year hired law firm Davis Polk & Wardwell LLP as restructuring counsel and added longtime restructuring specialist Steve Miller to chair its board.

Purdue has been targeted in lawsuits by some 1,600 cities, counties and states seeking to recoup costs incurred by widespread opioid abuse. The municipalities claim Purdue and other drugmakers’ aggressive marketing of prescription painkillers helped hook the nation on opioids, leading to a proliferation of overdoses from both legal and illegal opioids.

I know one of the Sacklers, part of the family that controls Purdue. He’s a great guy and he and his family are incredibly philanthropic. But their money is blood money and both they and their company should be bankrupted for what they’ve done.

I’ve studied the opioid epidemic extensively over many years and it’s clear to me that Purdue Phama knew about the extreme dangers of addiction to Oxycontin, yet told doctors the exact opposite, thereby largely creating and fueling this terrible calamity.

For more on this, I highly recommend this article, The Family That Built an Empire of Pain, and these two books: Dreamland: The True Tale of America's Opiate Epidemic and Dopesick: Dealers, Doctors, and the Drug Company that Addicted America.

5) Robert Kraft’s massage parlor shenanigans (which he’s fighting – see: Patriots Owner Robert Kraft Ramps Up His Defense – wouldn’t it be cosmic justice if this resulted in the video becoming public?!) shouldn’t detract from the value of massage. I’m convinced it’s a major reason why I haven’t gotten injured despite the absurd things I do a handful of times a year to my aging 52-year-old body (click here for a write-up of my major adventures over the past few years).

Before and after major races/activities, I go to Salon de Tokyo, a old-school shiatsu massage place on the 13th floor of an office building on the corner of 57th and Seventh. (I was there yesterday afternoon, in anticipation of my ski trip.)

There, a little middle-aged Chinese woman named Mimi inflicts serious pain for an hour – she can’t weigh more than 100 lbs., but when she’s standing on my back, it feels like 300! But it really loosens up my ligaments, tendons and muscles…

And it’s only $80 plus a $20 tip – the best massage bargain in NYC!

And it’s a great time to listen to my favorite book or podcast. Yesterday, at 3x speed, I got through the first half of this awesome new book: The Impossible Climb: Alex Honnold, El Capitan, and the Climbing Life. I’m getting fired up to climb El Cap later this year!