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.
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.
Welcome to our latest issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring investors exit long-short hedge funds, the oil market is now "broken", and Haidar Capital surges 225%. Q2 2022 hedge fund letters, conferences and more
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