David Einhorn is one of my Favorite People
The more I learn about David Einhorn, the more I admire him. Not only does he run a veru successful hedge fund, but he is known as an excellent and ruthless stock picker. He can't open his mouth about a stock without the stock moving.
Someone posted on the Herbalife conference call thread a conspiracy theory that Einhorn maybe be preparing to wage war on public Multi-Level Marketing firms. As a firm hater of the business model I'm hoping this conspiracy is true (for those of you who have no idea what I'm talking about:
The story is not over. At the conference, one of Einhorn's first slides just was completely white and had "MLM" in the middle. He said something like: "Today I want to talk about a company with material issues on many levels." I'm sure everyone though MLM meant multi-level marketing and not Martin Marietta Materials.
David Einhorn if you read this, keep doing what you're doing. You're a badass and an inspiration.
He's also a very good poker player. I started playing online poker at 15 and I've played at a WSOP event. But like Einhorn, poker is just a hobby that I want to continue pursuing as I make more money. He's now playing the biggest tournament ever: the $1 million dollar buy-in charity tournament at WSOP. I hope takes it down.
sorry to burst your bubble, dude but he's married
hmmm, if we roll back 10 years and look at the top performing guys, you'll see a fair few have been busted for insider trading/market manipulation. There were similar news articles about Madoff et al.
He's been clearly found out on one insider deal, and that was pretty clear cut (i read the full transcript). I like the guy, find him fun, and if he is as is, then I share your sentiments. However I can't help think there's something missing.
What insider deal are you referring to trazer?
http://www.fsa.gov.uk/library/communication/pr/2012/005.shtml
that would be this one.
edit: and if someone of that net worth is willing to risk that much for such a little reward, it does make you wonder how he actually earns his money.
I'm no expert on insider trading laws but isn't this bullshit? They called him up with information to see how he'd react, he declined to listen to that information. In the US it would be legal for him to act on the phone call since he didn't agree to be party to inside information.
Really? If you thought that was insider trading then I've got a bridge to sell and an excellent investment opportunity for you.
If your broker called you up and asked you if you wanted to be involved in equity offering for a company in distress, what would you say? I'd say shit, no I don't want that... what company? Oh. I own them already. Ya I don't like them if they need to raise equity, I should probably sell them actually. It's not insider information it's no different than when a boiler room sees that you're a whale and calls you to buy XYZ Dogshit Inc., but it wasn't worth enough to Einhorn to fight it at a $9M fine... the publicity alone isn't worth it.
Don't these 2 go hand in hand?
Not necessarily...you can be an excellent stock picker and achieve great alpha consistently, but a ruthless stock picker shorts lehman prior to bankrupcy and obtains a reputation that pretty much bars him from saying any opinion on stocks in public.
David Einhorn and Bill Ackman are cool people, man.
"Einhorn is known for shorting Lehman Brothers Holdings Inc. before it collapsed in September 2008." LOL
Anyone else think the OP has a garage full of Amway products he's never gonna sell?
I HATE AMWAY
It's not odd, it's smart. If anything it's hilarious. Considering he basically made it as clear as possible that he wanted no part in the offering and there was technically no wall-cross by David or anyone at Greenlight, he wasn't acting on inside information. Ask anyone with legitimate knowledge on the situation and they'll tell you exactly what happened - the argument for punishing him was that a sophisticated and privileged investor like David should have known better than to do what he did because it's gaming the system. Not that he deliberately traded on inside information, since by technical definition he did not. Don't you think they would have prosecuted him criminally rather than fine him an insignificant amount (relatively speaking) if it was legit insider trading? I'm not gonna get in a flame war about it because we basically agree to disagree: my point is that it was a shrewd move by David because he knows better than 99% of HF managers how these rules work and he knew he hadn't come over the wall, wanting no part in the offering, and that gave him the ability to start dumping his shares right after the call. The argument against him is that while not technically insider trading, he knew what was going on and used the information in what most would consider an "unfair" way, and ended up gaming the system because he's smarter than the regulators (which isn't hard to do).
And you said it best in one of your earlier and hilariously ignorant posts, why would someone of that net worth be willing to risk that little amount of money? Because it was within the rules for him to do so. You think he was insider trading on Allied? I work with guys that were sitting in the damn room when they were ripping Penni Roll a new asshole. I'm sure you know him a lot better than I do but David's the kind of dude who goes out to dinner with his wife and doesn't order anything because he's too busy reading a 10-k to eat. And I'm sure he wrote that whole speech at Ira in '02 as a fucking cover up. Same with GAAP-uccino.
But what do I know, I'm fucking retarded. And you read the legal documents. I'm sure he's a fraud.
like the billionaire at Galleon making a million from that Goldman deal and busted for years? Oh wait.... he made it all from insider, but only 1 case was provable.
Time to start quoting the judgment:
The FSA’s view is that Mr Einhorn’s decision to deal was based on the inside information he received. It is sufficient that a decision to deal is materially influenced by the inside information, it need not be the sole reason for the trading.
"Not that he deliberately traded on inside information, since by technical definition he did not." Standing by that still?
OK lets go back to basics: the definiton of insider trading:
he buying or selling of a security by someone who has access to material, nonpublic information about the security.
FSA Judgment:
The information was not generally available
There was no generally available information regarding the timing, size and shareholder support for the issuance and these factors could not have been deduced from other public information by market participants. Thus, it was not generally available information that Punch was at an advanced stage of the process towards the issuance of a significant amount of new equity, probably within a timescale of around a week, with the principal purpose of repaying Punch’s convertible bond and creating headroom with respect to certain covenants in Punch’s securitisation vehicles.
Mr Einhorn’s behaviour amounted to market abuse by way of insider dealing in breach of section 118(2) of the Act for the following reasons (as detailed further below): (i) Mr Einhorn was an insider; (ii) Mr Einhorn dealt in the investment; (iii) Mr Einhorn had inside information; and (iv) Mr Einhorn dealt on the basis of that inside information
Ok, if he KNEW what he was doing wasn't wrong, then why the hell would not even consult his own legal/compliance/risk teams? Does he not think, after a 45 minute conversation with insiders to check, you know, just to be sure? Think through how fast you have to be to issue that volume of sell orders in 2 minutes after a call ends.
Although Mr Einhorn’s approach to the Punch Call is not criticised, following the call Mr Einhorn should have been aware that he had been given inside information, or at the very least that there was a risk of this. He had a responsibility to consider whether the information received during the call constituted inside information before instructing the sale of shares.
In answer to your point about not wanting to be part of the call. I have a great way of not being part of calls. It's called hanging up. Other popular techniques are being polite but really having to go. Less popular ones are standing on the phone asking for specific numbers involved, and how far along the process they are, for 45 minutes.
I'll ask you this, since you point blank refuse that your idol might not be what you adore him as:
The information was not available to the public and therefore insider. What else could someone have done to actually act on this insider information, and therefore be an inside trader?
If it looks like a duck, and it sounds like a duck, it's a duck.
If you believe this, good luck finding a decent wife.
I won't get into it because you seem to either be a) a law student b) a trader who wishes he wasn't or c) totally out of the industry, and therefore not a lot of experience with stuff like this.
I hate doing the thing where you take a guy's argument piecemeal and try to refute each piece with quotations and shit you found via Google, but really quickly I'll at least give you Einhorn's statement after the fine:
"The fine is for trading in advance of a decision that had not been made, and the FSA concedes we did not believe we had any inside information. We did not enter into any confidentiality agreement, we explicitly requested that we not be given confidential information, and we do not believe we were given any such information. Further, all the witness testimony supports our view."
I'm pretty sure you mentioned that the FSA said he deliberately acted on inside information. Wouldn't they prosecute him then? They explicitly said that if anything he wasn't trying to engage in insider trading or market abuse. They basically made an example of the guy for gaming a shitty system. If you understand the offering, why it was happening, and the way insider trading rules work, you'll see that what David did wasn't wrong, but the fact that it was so blatant was a slap in the face to the FSA, which I totally understand.
David basically told the guy, 'if you were going to do an equity raise at 350 sterling, there's no way we could get behind that. We'd rather see you default and go bankrupt than dilute the upside that hard, so it's something we could never do.' He played the game the way anyone who is trying to make/save money (and was smart) would play it. He broke no rules, but he wasn't stupid either, he knew he got lucky by getting a call about the offering.
If you work in industry, you know that public information is horseshit. We all get such an insane amount of information that is unattainable to 99.9% of the general public and that's why the retail investor always loses. Yet it's not insider trading. Einhorn wasn't an insider, he never consented to getting behind the equity offering to hear explicit and definite details, but he took advantage of the stupidity of the CEO to save himself some coin, which is awesome if you ask me. You may have different virtues and see things differently, which is why I say I don't want to argue that with you, but at the end of the day you ask anyone with knowledge of the situation and they'll laugh about it. By the sheer volume of random quoted legal speak in your posts I'm assuming you don't have much experience with this stuff, so from the outside I can see why it would smell.
I do work in the industry, the quantative side of trading (FO Quant/Dev), and it's really fucking obvious when insiders are trading.
We see a massive spike that sets off a trade, we look at the causing factors behind it (typically a news event or a significant order from an institutional investor). Every now and again we see a big spike and then minutes later a news event stating unknown sources that there's great news in the company. Typically insider trading of this ilk costs us money. We're prepared for news events, thats in the algorithm we arent prepared for people that know whats about to be the next news event.
I wasnt quoting random shit off google, I was quoting the actual FSA judgement, from the FSA website. If you read their judgement they concluded that it wasn't intentional. I concluded differently, based on the nature of how long he takes to make investment decisions, typical selling patterns and what he did on that day. A level headed poker vet doesn't act irrationally on a moment of madness.
I followed this case extremely closely, because he was a hero of mine, especially after seeing him at the WSOP in that jumper, but after reading the entire phone transcript, and the reports of the authorities, I now see him in the same bag as that Galleon bunch, just a lot nicer to the public image. His approach to the phone call was indeed one of a walled nature. His actions thereafter strictly broke every rule there is about a walled conversation, which I quoted for you above.
Exploiting the stupidity of the CEO? The CEO didnt lose anything out of this, not that this is relevant in an insider trading case. He knew full well what he'd just found out and acted on it. That's insider trading, it's despicable and people that do it should be fined, jailed and banned from the markets.
Unattainable is not the same as not freely available. The retail investor can buy a bloomberg delay subscription, and access what we access (all we get with the algos is a reuters + bb datafeed), nothing else. The cost is pretty low. What DE found out in that room I could never have known until the rest of the world did. This is the crux of the argument. I don't care if you think insider trading in that way is ok. It isn't. There was no investment in a data feed, or technical analysis behind this, it was a phone call to insiders which he then traded on.
Since you ignored the question above, I'll ask a different one.
If this is legal and you think it's fine and really smart, why aren't you doing it?
I've worked at three pretty big and well-regarded funds, and I can assure you that we are. Consistently, effectively, and relentlessly, with no plans to stop anytime soon. If you think it's wrong, we can agree to disagree, but this is how we operate. The majority of the alpha at these funds [well two of them, the other one was your typical run-of-the-mill l/s fund too big for its own good] comes from conversations with management, ex-employees, etc. that give us the kind of information that essentially nobody else in the market has. If we went directly to the SEC and told them about it it wouldn't be called inside information, yet it sounds like inside information and it smells like inside information. Hell, I could tell you about dividend raises and buybacks at a handful of 30B+ companies that are coming up, accurate to within 2-3 days, solely based on my diligence. Maybe as an algo trader it hits you guys way harder because obviously nobody assumes insider trading in their formulas and you can eat big losses because of it. That's probably part of why I never got into that stuff. This is a soft science, not a hard one, and knowing how much push and pull you're allowed is a big part of beating the benchmarks. I'd bet most algo traders would agree with your viewpoint, which as you said was different than the FSA's in that they thought Einhorn didn't intentionally trade on material info, but I'd also venture to guess that most HF analysts would scratch their heads and say what he did was fine. At that point it's just getting down to subjectivity. Following the language of the laws I think he was okay though, my opinion, but that being said, I get why he was fined.
PM me, like, NOW. lol
Thank you for being so candid here. Access to non-public information (not necessarily insider information) is an important source of alpha. That is why there is a whole cottage industry of expert network that is not going away despite the recent series of high profile SEC insider trading cases. I was actually at a Sadis Goldberg symposium shortly after the former SAC traders convictions and they had a whole panel on guidances for the proper M.O of the experts in relationship to the compliance clauses.
this thread was satisfying.
read the whole thread but can anyone explain why that was not insider trading? Not going into the specifics, I thought insider trading: trading with nonpublic information. What about this case (receiving phone call from broker) made it not nonpublic?
Thanks
This thread has the feel of the 1% (blackhat) vs the ows crowd.
yes, basically. being in industry and having this sort of stuff happen all the time, and knowing how the rules are enforced behind them, this isn't what we would consider inside information though it seems like it is and many could argue that it is. but from an enforcement standpoint, as the outcome definitely suggested, david einhorn got away with "insider trading" by doing what the industry-accepted practice is. it happens in law all the time. FSA knew they had no criminal case so they slapped him on the wrist and he accepted it because it would have been more of a pain in the ass not to.
I have no horse in this race but must insist that any quotes from me are not used to espouse man crushes. If you want to use my words to idolize Kate Upton's breasts, the United States Constitution, John Wayne Movies, or beer, feel free.
FWIW, I really don't think Einhorn is guilty of anything, other than being smarter than a team of idiot bankers and a clueless CEO.
If what Einhorn did was insider trading, I think that every banker doing a rights issue for a company should just spam every major investor in their company the plans.
"Issuing $1B in shares. Ur wallcrossed now. LOL."
Aren't there some differences between what is considered trading on insider information in the US and UK? I think someone brought it up in our earlier discussion of the fine... //www.wallstreetoasis.com/forums/d-einhorn-fined-£72-million
Aside from the legality of the trade, do you guys think that what he did was ethical? Where would you draw the line?
Einhorn to play tomorrow...18 milly for first!
http://www.pocketfives.com/articles/full-list-wsop-one-drop-entrants-re…
Good luck to David (and the other finance professionals)
I know 99.99% of you do not care, but Einhorn made the final table. He's also pledged to donate his entire winnings to charity
From wsop.com:
Let's not pretend we weren't all pulling for him. I'll be watching babe, call me maybe.
David got 3rd place, for a payout of 4.3m. Congrats to David and the charity he chose!
Never thought watching BH dunk people would be this good
Einhorn - PEG Ratio (Originally Posted: 07/12/2012)
Does anyone have the transcript of the David Einhorn's speach at the 2005 Value Investing Conferance? I know he talked about PEG Ratios there and I wanted to read it. Any help would be great because I can't find it anywhere! Thanks
If its the speech I'm thinking of, you should be able to find it on youtube
happen to have a transcript?
David Einhorn: Fooling some of the people all of the time. (Originally Posted: 06/24/2013)
What do you think of his book? I am considering reading it? worth the time?
thanks for any opinions/ reviews
Its a very detailed book. Its amazing and one of the better books on hedge funds post 08 but its a heavy read. You will go very deep into the Allied Capital short and learn to admire Einhorn even more.
However if you want to just learn about investing in general try Klarman's Margin of Safety (assuming you've read the usual suspects).
It's a really great book. Definitely worth your time as it also shows you how Einhorn thinks about investments and firms in general.
Agree w/previous posts
Everybody on WSO will tell you it's great. However, David Einhorn is not an engaging writer. I found it so boring that I could not finish it.
One of the reasons I like it is also the reason I agree that its objectively dry (and, yes, boring at times). It's an extremely detailed explanation of how a thesis was developed, researched, and monitored and how it eventually played out. That means a lot of "and then on the next earnings call the CFO said..." and, due to the nature of the short (largely based on technical accounting principals), lots of tables and discussions of GAAP terminology. It also opened my eyes to the kind of primary diligence hedge funds do.
I loved the book and have read it twice. But as SirTradesALot said, spots are quite dry and technical. You get to appreciate the good work quality funds do, though.
Confidence Game is a better read in the sense it's not as technical and is written better.
Agree with above. Very good read, however some of the content was painstakingly repetitive. Chapter upon chapter of repition about over value examples.
i'm hugely cynical about him, especially considering his punch trade. an investment book written with hindsight could contain anything, and it would obviously be true.
ok thanks a lot
If you read the level of detail, including times and dates, it is clear that Allied Capital was a scam and the US Government was quite complicit for nearly a decade.
I'm surprised you feel that strongly about it. Even the people I know who think he did something wrong think it was a grey area/judgement call. Companys do hypotheticals/"non-deal" roadshows all the time, there was wide speculation about equity issuance already, and Greenlight specifically said they did not want wall-crossing info.
Very dense and hard to get through, from my perspective. I read about a third of the way through it before I coudln't stomach anymore and put it down. But people who've read the entire thing say that it's a great insight into the way Einhorn thinks
David Einhorn (Originally Posted: 05/01/2012)
How can one man make a company lose 25% of it's market cap with just three questions.
+1 SB to you sir
Whats every ones opinion about Herbalife, any health geeks take any supplements from this company?
This is crazy. Einhorn can make money on a position just by asking a few questions in a conference call. Not saying this is what happened but it's possible.
dude is awesome
anyone who hasn't done so, should read Fooling some of the people all of the time
He's a legend.
He called Lehman before it went down, took a lot of heat for it, but was labelled a baller when everyone realized he was right.
Anyone have a PDF of it?
I was just going to post this. The guy is such a fucking BOSS, it's sick. No doubt he's one of the 5 best hedge fund managers out there right now, in any space, along with the likes of Jim Simons, Seth Klarman, etc.
all these analysts are saying it's a buy lol shit still droping
inc congressional hearings?
Wasn't he on the board of Countrywide? He killed it with Lehman but his overall view of the subprime mortgage industry wasn't on par with Paulson and Kyle Bass.
The guy def has a knack for interpreting financial statements. Like Soros, he's taking advantage of the herd behind him.
I think Einhorn understands individual stocks on a deeper level than almost anyone out there. Not just financial statements analysis but also extensive research into a company's distribution channels, inner operations, etc.
Paulson made one REALLY good call and has been living off of it since. I'm not convinced that he is one of the truly elite hedge fund managers in terms of pure talent.
With the level of diligence they do, I actually think working at Greenlight would be miserable.
Would still be an awesome learning experience that most people would kill to do for a couple of years. I definitely agree that he could ask questions on almost any stock and it would go down, but I wouldn't want to be long knowing that he's taking the other side.
Also, I doubt Einhorn actually shorted it before the call. And I bet he was very surprised by the market reaction to his questions. If anything, I bet greenlight loads up the truck on Herbalife shares tomorrow. I'd be a massive buyer right now. This thing will pop 10+% tomorrow. You heard it here.
Yeah definitely. Because Einhorn's the type of guy that does his due diligence during conference calls. He definitely didn't want to get them on the record responding to those questions, and he certainly doesn't already have a short position, nor does he know the company better than senior management.
EDIT: Now down 6.3% today, hope you had a good time loading up on HLF!
Well is Herbalife even a real buisness or is it a pyramid scheme?
They don't even have bar codes on there products do they?
I don't get it. I saw the question and I read the transcript. His question seemed pretty innocuous and the CFO said they could easily provide the data. Does anyone have any idea what Einhorn's getting at or why people think this line of questioning suggests some fundamental weakness in either the business or the financials?
David Einhorn is the best research analyst in the business. Nobody comes close. I'd kill a small child and eat the remains in front of a live studio audience just for an opportunity to interview with him.
In case you're interested.
http://www.charlierose.com/view/interview/11333
[quote=oaktreeman]In case you're interested.
http://www.charlierose.com/view/interview/11333[/quote]
Thanks for the link. I have really enjoyed the handful of interviews that I have watched so far, and I will definitely watch this tonight.
I'd still load up on Herbalife if I could. But we don't trade US stocks at my fund. And you unpreftigious idiots criticising my "buy" with the benefit of one day or hindsight make me laugh. These are the sort of opportunities event driven funds kill for.
Ahh the old "Take the other side when David Einhorn starts asking questions on a conference call" Event, A classic strategy.
Somewhat related? - Anyone else notice GMCR tank 40% after earnings/call tonight?
I like him but OVERRATED suits him well.
My man-crush on this guy cannot be explained in words. He understands the things that are important to understand, and he only swings at pitches he can hit. And he's [relatively] young for how successful he's been.
Silence is golden. Shorts are about to get their balls squeezed. Back to 70 + by Friday?
David did the pump and dump in reverse (what would that be? Dump and pump sounds weird). He's out of the trade.
a blumpkin
Einhorn does it again (Originally Posted: 10/18/2012)
Man, Einhorn is on a roll. Two weeks after presenting CMG as a short, the stock takes a nose dive today. Down ~12% after-hours after missing analyst earnings forecasts.
Anyone else ready to tag-along on all Einhorn shorts in the future?
He is good. Normally I don't have the sack for short positions, but this would be a good environment to start...
Einhorn said, "People like Doritos Locos Tacos," so should we all buy YUM! Brands?
I'm going to go start the first Einhorn ETF.
Or assuming he's raising any more capital, we could all just invest in his fund the old fashioned way.
The question is if Einhorn didn't present his short thesis would CMG been down this much. Or if Einhorn effect caused it tank more than it should.
He followed up with an explanation of why he wasn't long YUM brands. Their China exposure, if I remember correctly.
I also don't understand why people like doritos locos tacos. That just sounds fucking disgusting. I can appreciate a cheesy gordita crunch, but doritos locos sounds like the equivalent of nathan's selling hotdogs in a giant scooped out cheeto.
You can get the dorito shell inside of a cheesy gordita crunch. You're welcome
He was long MRVL, down 10% today.
Dude is a short selling monster, but his long picks are so-so.
Agreed, I'd follow his shorts. Longs, not so much.
Harder to pick good longs in the market cap size Einhorn is forced to play in -- not making excuses for the guy because I don't really follow his longs anyway, but that's a fact. The long side, especially in that cap range, is way, way more competitive than the short side.
From what I have seen, he mostly targets over extended momentum stocks (of the IBD type) that are about to experience decelerating momentum and a change in shareholder constituency. That's a good strategy and highly actionable and liquid enough for a large capital base hedge fund like Greenlight.
Point is, I bet he's a monster on the long side as well and if he were playing with a smaller pool of capital, I'm sure that would be more evident (not that his overall performance isn't awesome, because it is).
Einhorn ETF would be fantastic. But... I wonder how much validity there is when people say that he can alter the markets himself just by issuing public statements.
Someone beat you to it. It's not raising assets and seems kind of retarded, to be perfectly frank.
http://finance.yahoo.com/news/alphaclone-launches-hedge-fund-tracking-1…
So many people were short on this stock, 12% of float with 4 days to cover. Not a big deal. It's not like he was the only one shorting this stock and many people short the stock near the top which is a better short.
WSOP chick: So, any chance of you giving up finance and playing poker full-time?
Einhorn: lulz, that's just silly.
Einhorn is brilliant, but his thesis on CMG is only partially right. He's right on healthcare, food costs, tough macro, overowned stock, and sky-high valuation, but the Cantina Bell argument is garbage (they claim not to have experienced any impact from Taco Bell, which I believe... I think worst case, there were some people who tried Taco Bell, but it's too small to matter). We've been short since June, but the thesis had nothing to do with the Cantina Bell. Furthermore the magnitude of this decline isn't at all related to Einhorn, though you guys, like the financial press, are eager to get on your knees and worship him on such a prescient call. Plenty of people saw this train wreck coming... look at the short interest.
Amen! CMG was trading at rich levels, but this drop cant be attributed to greenlight. Followers latch onto his words so closely that any einhorn correction would be realized in minutes, if not seconds. Maybe its because I'm from a smaller town, but there are still many areas where a CMG would kill it. You should have seen the lines when the first Panera Bread came to my home town...
With that said - look at valuation... CMG is on the complete outside high end of the spectrum when it comes to QSR companies....
Exactly. This wasn't some groundbreaking bold call by Einhorn. We've been short since the uptrend died in May or whenever. I was confused by the Taco Bell argument since just from experience I think the number of people out there who weigh Taco Bell against Chipotle is countable on one hand. That could change over time but I highly doubt it, though all the conventional reasons for betting against CMG are entirely valid and in my eyes pretty damn obvious. That said, I still think the guy's awesome on the short side but tend to agree that his longs are average. I'm not piling into STX anytime soon. And as bad as I want to short LULU again the time isn't right (though today says otherwise) just yet. Never take another investor's advice without at least knowing what he's talking about.
Disclosure: I am short TRIP
I'm on the Einhorn bandwagon. Also, I'd like to play poker against him someday.
Short CMG since $335. But not this last time. July '11. OK this is not true, but all his arguments were true then. And yet I would have been stopped out by my risk manager by Mar '12, max, regardless of fundamentals, or whatever greasy shit Taco Bell came up with. The point being? Should I try to ETF-package whatever crap goes up or down more than 20%?
Einhorn is a boss. Unfortunately now the market reacts too fast to his calls. MLM got whacked literally in a matter of seconds after Einhorn said he was short at the Ira Sohn conference, since bloggers/Twitter users then blasted that all over the place
I think Einhorn's justification is wrong regarding CMG. In my opinion, Taco Bell won't hold a candle to CMG in terms of quality. There is a completely different brand of people that go to CMG than Taco Bell.
CMG was trading at a sky high valuation of a 55+ P/E in April. Now it's probably in the 30 range. I think they just fell victim to the 'expectation treadmill.' They enjoyed a number of years of impressive comparable store sales growth of 10+% and now they have to "settle" for 4-6% (which is still light years ahead of competitors). Previous years comp sales growth was attributed to menu price increases which they halted in 2012. I don't think the last two revenue misses were all that unexpected. Revenue is still growing 20-25% yoy.
I think now would probably be a good time to buy CMG.
He is a genius but I'm not going to blindly follow him into trades. He also said that analysts make calls based on his pitches are "the same as the replacement refs"
"Einhorn begins talking about an anonymous “Influential Investor” from 1996 who purchased shares in Cityscape stock and touted it at the Barron’s Roundtable. The stock tanked, and the investor admitted the mistake. The lesson he preached to those who followed him into the name is: “do your own homework”. Einhorn reiterates: never blindly follow an investor into a stock."
FWIW, the influential investor he reference was Michael Price
Einhorn's primary reason was the competition from Taco Bell's new Cantina menu. That competition never materialized, hence I'd question calling him a God for this call.
Yah I'm not gonna diss him for the call, he probably made a ton of money on it. Personally though, I believe the past two misses are a result of the expectation treadmill. The market gets used to, and EXPECTS 25-30% yoy revenue growth with 10+% comp sales. That is simply unsustainable. So the stock gets punished even though they are killing their competitors right now. Panera barely holds a candle to Chipotle and Panera is run exceptionally well in their own right.
If you are a contrarian investor, now would be a good time to think about purchasing some CMG. P/E has retreated to a multiple more in line with top tier competitors and hopefully the market has priced in the expectation of only mid-single digit comp growth.
If CMG comes back and raises prices a little they will be right back to 10% comp sales, post a beat and the stock will jump 15%.
Anyone have a take on Herbalife? The stock has yet recuperate, but I am not sure his phone call warranted such a sell-off.
It's a pyramid scheme, but can go on for a long time before it crashes.
double post
Transcript of David Einhorn’s Phone Call with Punch CEO: Insider Trading (Originally Posted: 02/17/2012)
David Einhorn’s insider trading case provides an opportunity to get to know him better. You don’t get to eavesdrop on a conversation between a top hedge fund manager and a CEO of a company (two bankers were also eavesdropping while David Einhorn was talking to Andrew Osborne). Here is the transcript of David Einhorn’s phone call with Punch CEO:
GREENLIGHT ANALYST: All right. How do you dial a…?
DAVID EINHORN: Oh no, no. I said I wouldn’t [overspeaking] do it.
GREENLIGHT ANALYST: We might have to call Ten Holter to have him conference in. He’s really smart dialling.
OPERATOR: Thank you for calling Merrill Lynch conferencing. Please enter your passcode followed by the “#” sign.[Dialling]OPERATOR: After the tone, please record your name.beep
DAVID EINHORN: Greenlight…Greenlight…
OPERATOR: Has joined the conference.
PUNCH CEO: Hi.
DAVID EINHORN: Hello, good morning.
PUNCH CEO: [Reference to Greenlight Analyst].
GREENLIGHT ANALYST: Yes, good morning.
PUNCH CEO: Good morning! Well, afternoon our time, morning your time. How are you?
GREENLIGHT ANALYST: Good. David’s here with me.
PUNCH CEO: Good.
DAVID EINHORN: Hello. I’m sorry I didn’t get to see you.
PUNCH CEO: Hi David.
DAVID EINHORN: Hi, I’m sorry I didn’t get to see you when you were in New York.
PUNCH CEO: No, no, we — well, we’ve — we’ve only had the chance to speak once, although we have seen [reference to Greenlight Analyst] a few times since then.
DAVID EINHORN: Oh, you’re — you’re — you’re getting more than — than I could help with anyway. So, this is good.
PUNCH CEO: Okay. That’s fair enough. Well, one day we’ll get you around on a pub crawl around some English pubs.
DAVID EINHORN: Oh, that sounds fun.
PUNCH CEO: It is. You’re right. This — we thought we could just take the opportunity to have a chat with you following I think the conversation you had with our broker at Merrill Lynch just about, you know, sort of where we are in terms of our position in the market, etc. You’ll have noticed today that we now have sold 11 pubs to Greene King as well so, you know, we’re making good progress on our strategy. But we think that, you know, it’s worth at least discussing in principle the — you know, where that takes us, and what other options we might have.
DAVID EINHORN: Okay.
GREENLIGHT ANALYST: [whispering - inaudible].
PUNCH CEO: So, you know, what we — what we said at the time of the prelims, and we reiterated it for the interim, is that we still expect to upstream cash from the Punch A and Punch B securitisations in this fiscal year together with the money that we’re generating from selling assets from the parent company down into the group. You know, there is a fair chance that we will be able to achieve the repayment of the convertible that’s due in December 2010. However, we’ve always said that there are very large moving parts in this and there is a, you know — there is a potential so that that isn’t achieved. And although the potential and the size of the — of any shortfall is small, we have to keep that in — we have to keep monitoring that situation. And moreover, as we — you know, as we do this process, obviously we’ve got to keep one eye on the securitisations as well, because it’s all very well up streaming cash to the parent company to meet the convertible, but it would be frankly pointless if we paid the convertible off only to breach either technically or otherwise the covenants in Punch A or – or Punch B. So it’s – it’s finite. The – there some specific advantages that we’ve taken — some — some specific things that we’ve taken advantage of in the last year which we can’t guarantee going forward, and — and so we really sort of — sort of, you know, think about what other things we can consider. I’m gonna give you some examples. So we’ve been very proactive on the buy back of debt. We bought back over 400 million pounds worth of debt. In fact, that’s up almost 100 million since the last time we — we were — we spoke, and we continue to buy pubs and, you know, excluding the announcement today — the announcement that we’ve made thus far, we’ve increased the number of pubs bought from 170 to over 300.
DAVID EINHORN: Sold.
PUNCH CEO: Sold, sorry, sorry. It’s already sold, yeah. So, I mean, I think that’s where we are. Having said that with all of the — the moving parts, you know, we are — we are seriously thinking about, you know, how we could actually better it. There’s one other thing which is probably important is whilst we’ve been buying back debt at a – at a substantial discount and we continue to believe that’s readily available in the marketplace, we’ve been able to take advantage of tax structuring to ensure that that discount is tax free. That tax structuring will have to change in October to maintain that. And whilst we’re confident that we can maintain that, we’re not 100 percent sure, and that would obviously make any — any — any buy back to debt in the short — in due course, more expensive.
So, that’s where we stand, and then we think in the circumstances therefore that, you know, it’s — it’s only right that we consider what other things we could do. And, you know, given the market — given the reaction of the market to the interim results, there are a number of alternatives that we — we — we think we can consider, and we just wanted to gauge your opinion.
DAVID EINHORN: Great. I’m not sure whether you’re asking what opinion you’re asking about though. Is it that — that you’re asking about issuing equity or you’re asking about something else?
PUNCH CEO: Well, we’re just talking about in general terms, about where we are at the moment in terms of what we’ve achieved so far.
DAVID EINHORN: Yeah.
PUNCH CEO: And, you know, where you are in terms of your position as — as shareholders.
DAVID EINHORN: Right.
ANDREW OSBORNE: I think it’s fair to say, David, that following the road show, there’s been a degree of [inaudible] in bound queries from both shareholders and non-holders [overspeaking] who believe that it would be appropriate for the company to consider issuing equity at this moment in time, which is the conversation I had with [reference to Greenlight Analyst] yesterday –.
DAVID EINHORN: All right.
ANDREW OSBORNE: — and so, you know, we wanted to — to follow up on that.
DAVID EINHORN: Right. You know, it seems to me that — that much of the potential attractiveness of coming and selling equity at this point stems from probably the fact that a few months ago the equity was at 40 pence, and now it’s at a £1.60 or something like this. And so, it’s up from the bottom. On the other hand, if you look back a couple of years ago, it’s — the equity is really down a lot. It trades at a very low multiple of the book value and, you know, the comp – the company — the equity continues to trade as if it’s really an option on the debt side of the capital structure. That’s — that’s the way that we look at it. And we think it’s a very cheap option because of the types of things that you’ve been — already been able to execute on, and I think that you’re going to be likely to be able to execute on, uh, going forward. I think that in — if the equity was — was overpriced and you had an opportunity to reduce the financial risk of the company, I think it would make some sense to considering equity at that point. But I think, if you just looked in a slightly different world and thought “Jeez”, if the stock had come from where it was and it had never gone to 40 pence but instead was sitting at 1.60, then 1.60 represented a new low, down from whatever previous higher price it had used to have been at, I don’t even think you would be considering selling equity at this point. And — and so, I think the mere fact that the stock went to some lower price is not reason to — to dilute the — to dilute the equity in a substantial way, you know, at this time. The — the next point would relate to, I guess, the amount, and I guess that would look — you could look at that two ways. I suppose if it was a very small amount of equity being raised it would not be all that dilutive, and so there wouldn’t be a reason to have a very big concern about it. But, on the other hand, if there was a small amount of equity that was being raised, it wouldn’t really solve any of the company’s intermediate or longer term risks. And if there’s a large amount of equity to be raised, well, then it’s massively dilutive, then it — it will dramatically — I — from my perspective, worsen the risk/reward from — from owning the stock. So, I — I would — I would suggest continuing executing what you’re doing right now, which seems to be doing very well. I agree with you, it seems like there’s going to be a lot of debt in different parts of the capital structure that seems like it’s going to be available at attractive prices, and I — and I wouldn’t allow myself to get browbeaten by convertible bondholders or, excuse me, Merrill Lynch investment bankers or whatever else, you know, that — that is more transaction oriented. I think we create a tremendous amount of value by selling, you know, by selling pubs at reasonable multiples of EBITDA and then repurchasing debt at big discounts, and we’re hoping as equity participants not to make 10 or 15 percent of a year, you know, as market equity, but we’re looking for a significant revaluation of this company on the basis that at some point the world looks at it and says, “Yes, you are — you — you — you have — you are clearly solvent, and you clearly deserve some kind of a multiple,” and — and the thing that would cut that off would be issuing so many equity shares that, you know, that – that — that the upside disappears.
PUNCH CEO: Yeah, David. That’s very — very helpful. Just in terms of — firstly I completely agree with you in terms of the — the option, the – the effective implied value attributed to the — to the equity, the option versus the debt side of the capital structure. And therein lies the conundrum in a — in a sense that — that of course that — that option value at 40p was pure option value. Now, there is at least some expectation that we might survive despite people’s better expectations back in, say, January February.
DAVID EINHORN: Right, right.
PUNCH CEO: In terms of – in terms of [overspeaking].
DAVID EINHORN: I — I would — sorry. I would say as a — I would say as a rule of thumb, if the market capitalisation of the equity is less than half of the face value of the debt, the — the stock remains sort of in an option area.
PUNCH CEO: Well, the only – the only challenge to that is — for the entirety of our value – of our time as a public company, that has been the case.
DAVID EINHORN: Mm hmm. I don’t know if that’s really true. Is that really true?
PUNCH CEO: Yeah, yeah, I mean even — even when our share price was, you know, just over 2, 2.5 billion, you know, the mark — the market cap value of the debt was over 4.5 billion.
DAVID EINHORN: Yeah, and that’s about — then you’re right. Then — then you had just crossed through the — the cusp which is of course why — the stock was at risk to go down, you know, much more than [overspeaking] as it changed.
PUNCH CEO: Well — well — well, I don’t necessarily disagree with that either –
DAVID EINHORN: Yeah.
PUNCH CEO: — because at that time, I was one of the few shareholders, and in fact I was challenged by somebody who said that I thought that there was, you know, considerable — there was too much hype in the — in the share prices at the time, but in — in terms of just a couple of the other points you made –
DAVID EINHORN: We weren’t –
PUNCH CEO: [overspeaking].
DAVID EINHORN: — we weren’t involved at that point, so I really don’t – honestly, I don’t really know.
PUNCH CEO: I — I totally appreciate that and I, you know, I appreciate your — your — your involvement as a shareholder. In terms of the — in terms of the — the point about the share prices… the 40p versus the 1.60 or something, I think I — I slightly disagree there because — I mean, to be honest, the — the — the — the key point is whether – when’s the right time to de-risk the balance sheet, and to be honest, that’s not a function of the share price. The — the option value is — is fine. The prin — principle of — of — of valuing it on an option basis is perfectly fine, and I — to be honest, you know, we have always managed the capital structure on a — on a minimal amount of equity relative to — to the debt. We’ve always looked to the debt side of the equation as the more important part of the capital structure from use of cash. On the other hand, I mean, what I don’t want to do is be in a position where we take it too fine, and that — that you trip over a — a hurdle that creates a series of problems, which means that the option value of the equity really is that, and the op — the equity disappears. Well, whilst in — in share price terms, the magnitude of the problem might be significant in terms of the overall value terms relative to the debt the magnitude of the — of — of the difference is very small. And — and if you can — if you can see your way through to a path which allows the re-rating of the stock to compensate for that and also to take into account the fact that you can use the cash to buy back debt at a substantial discount — to continue to buy back debt at a substantial discount, any use of cash is very creative from a shareholder point of a view immediately.
DAVID EINHORN: Well, this comes – I mean, this [overspeaking].
PUNCH CEO: I know, just — just — just one other point on the convertible. We have not spoken to any convertible holders other than our efforts to buy back the convertible in the market. So, this is not a — this conversation is not motivated by a conversation with convertible holders, and nor for that matter actually is it driven by investment banks. Having been a poacher turned gamekeeper, I’m as sceptical as you are, I’m unsure about their — their motives.
DAVID EINHORN: Yeah. What I would ask you then is — then the question comes down to, because maybe we’re just looking at it from a different perspective, it comes down to a question: well what do you think the stock is worth?
PUNCH CEO: Well, I’ll be honest with you. The stock is worth either very little or — or a lot more than it is now depending on –
DAVID EINHORN: Okay.
PUNCH CEO: — on the expectation of — you know, of the next couple of years.
DAVID EINHORN: Yes.
PUNCH CEO: And — and I don’t mean — I don’t mean it from my personal perspective of what it’s actually worth, but I’m talking about what the market reaction to that will be.
DAVID EINHORN: No, no, no. No, no, then you’re making a mistake. Then you’re letting the market dictate to you [overspeaking].
PUNCH CEO: I’m sorry, [inaudible].
DAVID EINHORN: Then you — you don’t let the market dict — my advice to you is, don’t let the market dictate to you. You figure out what you think it’s worth, and then use the market as a opportunity to create value, which is something that I think you’ve been doing instinctively, if not explicitly, on — on the debt side of the balance sheet, and — and actually with some of the asset sales. You’re letting the market tell you what the opportunity is and taking advantage of it. So, why — why throw that aside for the purpose of — of figuring out what to do about the equity.
PUNCH CEO: Oh, sure. But then — then — then — then that’s the same in terms of looking at the opportunity in terms of the equity. If there is — if there — because –
DAVID EINHORN: Of course.
PUNCH CEO: — to your point — to your point, there is, yeah looking at — looking forward in terms of our position and now I’m talking in general terms rather than specifics –
DAVID EINHORN: Right.
PUNCH CEO: — you know, there is a risk profile to the strategy that we’re taking. That risk profile must have an effect on the — on the value that you would ascribe to the — to the underlying equity, yeah?
DAVID EINHORN: Right, um. Yes, of course.
PUNCH CEO: Yeah. So — so, therefore, what I don’t want to do is perhaps to have a conversation with you at some stage and say, “Look, this left field event”, which is in — in and of itself relatively minor –
DAVID EINHORN: Mm hmm.
PUNCH CEO: — has caused a sort of domino effect on all of the activities we’re doing.
DAVID EINHORN: Mm hmm.
PUNCH CEO: Or that we’ve done very well, for example, on — we’re meeting the conv — the convertible, but in doing so, we’ve had to push the securitisations to the limits, and there has been a technical breach on the securitisations, and that in turn takes – takes the equation there. So, I’m — you know, I’m naturally — we have — we have — despite everything, we have acted, I — I mean, whether it’s instinctively or — implicitly or explicitly, we’ve been — we’ve been very clear in terms of our strategy of realising cash to and – and buying back debts at a discount, as we did back in — in the autumn of last year. On the other hand, as I said in the beginning, the number of moving parts in that does put yourself in a position where there is a – there is a high risk profile to that, and there has to be a value to the question to — to removing that risk or at least alleviating that risk.
DAVID EINHORN: Yeah.
PUNCH CEO: And that’s — that’s all I’m trying to — I’m trying to evaluate, and –
DAVID EINHORN: Sure.
PUNCH CEO: — and also there’s another key point which is the timing of that, because 11th hour, 59th minute is brilliant in terms of — in terms of theory, but in reality the — the process that you have to go through to have a discussion about equity or — or quasi-equity-type transaction is much longer than that, the legal process you have to go to, document, etc., seek approvals. And therefore, you don’t have the privilege of being able to sort of leave it until the last minute and then pull the trigger.
DAVID EINHORN: Yeah. Well, let me ask you this. You still — you sort of ducked the question about what you think the value of the — of the stock is with — with — without a — without a deal.
PUNCH CEO: Um… Well…
DAVID EINHORN: It’s — it’s important to have a view to make a — to make a reasoned decision.
PUNCH CEO: I — I think — I think the — the valuation is — is fair at the moment. On the other hand, I don’t think necessarily that the market fully understands the extent of, the pluses and minuses to get us to the position we are faced in 2010.
DAVID EINHORN: Yeah.
PUNCH CEO: And so, therefore — therefore, if I was putting a risk factor on that I would discount it.
DAVID EINHORN: Mm hmm.
PUNCH CEO: But at the same time, I just — you know, I’m not — I’m not setting a market price for the — for the equity. I’m just running the business. I’m actually, frankly, not looking at the equity price; I’m looking at it from the point of view of maximising the value for shareholders, long-term.
DAVID EINHORN: Right. Well, I think its fine to run the business not looking at the equity price, except when you’re considering doing a transaction relating to the equity. Then — then — then it’s — then you can’t run the business without considering the equity price. When you’re doing it — when you’re transacting in the equity you have to think about the equity price.
PUNCH CEO: Well, yes — yes and no. Because the way I look at our business and I’m — I’m — I’m being simplistic, I know that it’s far more detailed than this, but it is that we have a fixed asset value of port – of the portfolio at a number, and at the last valuation, the number was 6.5 billion pounds. Now — now, the enterprise value of the business today — sorry, the — the — the value of the debt on a gross basis is around 4.5 billion pounds, so that would imply — so there is a — roughly a 2 billion-pound asset value that is attributable to the equity.
DAVID EINHORN: Right, now, what’s the value of — of the debt at market?
PUNCH CEO: Right, the market value of the debt is around 3.5 billion pounds so that’s a 3 billion implied value to the equity.
DAVID EINHORN: Okay. Then — and — then we –
PUNCH CEO: So that [overspeaking] — so that compares to a, you know, a position today of just over 400 million pounds market cap. It seems like a very large delta which is worth — worth preserving and that’s my — so my view on that basis is it’s, you know, the valuation is grossly undervalued. On the other hand –
DAVID EINHORN: Mm hmm.
PUNCH CEO: — if I trip over some further issue and the house of cards, you know, you know, takes effect and we lose all of that –
DAVID EINHORN: Mm hmm.
PUNCH CEO: — we won’t have time to turn around and say, “Let’s fill in the gap today”, because it will have gone, it won’t be attributable to us in a direct form. It will be very difficult to extract.
DAVID EINHORN: Mm hmm. So — so how much equity do you think you need to raise to protect the situation?
PUNCH CEO: Well, I — I think — I — I think the market sort of dictates this. I don’t think it’s a matter for the market to dictate that. We — our view is simple, that is, that, you know, we have to make sure that we can preserve a sensible headroom to the covenant from a securitisation and — and take out the convertible as the — the maximum and minimum requirement of any discussion. But there’s absolutely — if you go back over the history, and I know — I — and I — and I perfectly respect that you’ve not been involved from the beginning, but when we originally floated the company, we did an initial public offering of 116 million pounds. We have only done since that time –, that’s 161 million pounds. We have only done, since that time, 175 million pounds [inaudible]. So, to be absolutely clear, I don’t — I don’t look at the business from an equity perspective and if — you know, and it’s not my intention to over-equitise this business whatsoever. The transactions that we’ve done, for example, we’ve shown, pretty substantially dispassion in what we’ve sold to ensure that we maximise value on the debt and, so this — so it’s merely about making sure that — and we can turn around to the shareholders and say, “Actually, anything that we do is sufficient to give ourselves a – headroom for a considerable period of time into the future and also addresses the convertible”. That’s the maximum and that would be the minimum that would be worth considering.
DAVID EINHORN: Mm hmm. So, would you — as you pencil that out, what do those amounts turn out to be?
ANDREW OSBORNE: Something like 350 sterling.
DAVID EINHORN: 350 million sterling?
ANDREW OSBORNE: If you were — if you were to roughly sort of work on the basis that you kinda took out the — the converts, and that’s something that gives you, say, 10 percent headroom in within both of the covenants, filed covenants.
DAVID EINHORN: Wow, wow. That would be shockingly horrifying from my perspective. Can you sell half the company just at a buck and a half — a Euro — a pound and half? Oh, no.
ANDREW OSBORNE: So those proceeds are applied to buying back debt at say 60 in the pound and remember any –
DAVID EINHORN: Who cares –
PUNCH CEO: — [inaudible].
DAVID EINHORN: — who cares, who cares, after a year of going through this, now we’re going to dilute ourselves like this. Oh, no.
ANDREW OSBORNE: Why do you get diluted?
DAVID EINHORN: Because you doubled the share capital almost.
PUNCH CFO: Yeah, but [overspeaking].
DAVID EINHORN: And this is –
ANDREW OSBORNE: You know, and on a pre-emptive basis.
DAVID EINHORN: We’ve done — we’ve done all of this. We get to double our investments and have basically still highly levered thing, subject to all the same operating risk, just so that you guys don’t have to follow through and, you know, deal with the converters. We’ve been discussing with you for the last year and a half, where, at worst, it was gonna get very close to some small amount.
PUNCH CEO: Dave — Dave — David, but we’re sorry, we’re — we are acting on the basis of the current plans so you — today, we announced the transaction to sell 11 sites to Greene King.
DAVID EINHORN: Right.
PUNCH CEO: We’re not done, you know, that is — that is the priority and we’re carrying on business as usual. On the other hand, I would be — I would be at fault if I did not, sort of at least identify the — the risk profile of the issue.
DAVID EINHORN: Right, I don’t — I — I don’t think –
PUNCH CEO: I’m – I’m not –
DAVID EINHORN: — if there is — if there is risks that we don’t understand, we should talk about them some more, but, I mean, we’ve — we have spent a fair amount of time kinda going through this; and we understand it’s — it’s a — and it’s not that we’re callous towards the risk that the company might — you know, faces. We’ve survived watching the stock go all the way to 40 pence, for crying out loud. But, man, this sort of like validates the worst fears, and it seemed to me like you’re –
PUNCH CEO: [overspeaking].
DAVID EINHORN: — it seems like — it seems like you guys were really on a course towards figuring out how to manage the securitisations, manage the liquidity, manage the covenants, sell assets, you know appropriately, take advantage of discounts where available in the market, and, you know, this doesn’t — I don’t see that this gains us anything. I mean, you’re gonna be able to pay out unless you — if there is some reason why you’re not gonna have any money to upstream to pay the convert that you need to pre-fund and fully fund that now because the thing is that if you do this offering the — the price of the converts, the majority is going to go straight to par. So you’re not gonna get to buy it back at any discount at all, maybe 95 or some thing like this.
PUNCH CEO: Sure, well just [overspeaking].
DAVID EINHORN: You know, in — in — in fact — in fact — in fact you lose the opportunity also within the securitisations to buy a lot of the debt back at a discount because the market – the debt market will better revalue to reflect the higher solvency of the company and the equity market will say, “Jeez, that’s all well and nice, but there’s twice as many shares outstanding”.
PUNCH CFO: Okay, just [overspeaking].
DAVID EINHORN: I wanna — I would rather — I mean, if I were a bondholder, I would love this.
PUNCH CEO: Okay. To me — to me this — just a couple of fill-in points, in turn. Firstly, that we very much preserve — process — progress this business as usual. This is — is not a, you know, this is not a, uh, we can’t – we’re not going to carry on unless we do this — this — that, you know, unless we contemplate some alternative. We are operating on that basis and we have disproved the market for a very long time, specifically on that basis by — by moving ahead or being ahead of the curve on the disposals, and on our ability to buy back debt.
DAVID EINHORN: Right, but we haven’t yet [overspeaking].
PUNCH CEO: You know, it’s very –
DAVID EINHORN: But — but as equity holders — we — as equity holders we have not — we, in our minds — in Greenlight’s minds we think that that’s true, and in your mind I think you think that it’s true, but we just haven’t seen it in the stock price.
PUNCH CEO: Well, let me just come back — just come back to that, okay, because there is this more compared — more to that. We have — we have cash that we could — to spend on the convertible right now. We have cash to spend on the convertible. The convertible is trading at the levels that you were just talking about so therefore, that isn’t readily avail — the convertible isn’t readily available to discount already. And that’s just a function of the fact that it is small, relatively illiquid, tightly held and also has a relatively short period of maturity. So, therefore, [overspeaking].
DAVID EINHORN: Well, and — and also — and also because the market is judging it to be likely to be repaid.
PUNCH CEO: Correct.
DAVID EINHORN: Correct.
PUNCH CEO: Correct. See — so, therefore, if we – if we are – if we’re at fault for anything, we’ve done too good a job on affecting the market expectations. On the other hand, on the securitised debt, there is 4.5 billion pounds on the securitised debt, there are 21 tranches, and despite the fact that at the interim we gave a clear indication of the magnitude as to which we’ve been able to buy debt in the market, as I said earlier, we have continued to be able to buy debt in the market and we will continue to do so, and we do not believe that whilst I — that the market will close — that the market arbitrage pursuant to that will close down and — in — to the same extent. So, to the point – from the point – at the moment what we are doing is we are – we are risking – increasing the risk on the securitisation at the cost of the securitisation for the sake of paying off the convertible at — at or close to par. That’s what we’re doing at the moment because that’s the short-term requirement. Now, that is inefficient. If you can redirect your resources that you’re doing to buying back securitised debt at a — at a continued discount, then that is more efficient use of shareholders funds. It comes to the same thing. By 2010, we have to have generated 208 — 212 million pounds or 220 million pounds including accrual to meet the secure — to meet the convertible. But, at the same time, what I don’t want to do is to do that and then to be at a position where we trip to default on any of the securitisations.
DAVID EINHORN: Well…
PUNCH CEO: The — there is of course — there is of course another factor which is, as we get to the year-end this year, when — when we get to within 12 to 15 months of the — of the repayment date on the convertible, then we have to have debates with the accountants about going concern, emphasis of matter type of conversation. And then of course, if the market perceives this to be a risk then we go back to the sort of [inaudible] — you know, analysis on share price that we had back in January.
DAVID EINHORN: I — I didn’t understand what he said.
PUNCH CFO: When we get to the August [overspeaking].
DAVID EINHORN: I’m sorry, I didn’t — I didn’t understand what you just said.
PUNCH CFO: Yeah, at the year-end, clearly our accounts are audited –.
DAVID EINHORN: Yeah.
PUNCH CFO: — and the auditors are required to look at least 12 months forward to ensure that there are no events in that time horizon that would give any kind of questions or — or concerns around a — a going concern type of deliberation. And — and clearly at the year-end, when we look forward 12-15 months, there are a couple of events on the horizon that – that the auditors will have to get their minds around. First of all, the convertible, and I — I think we talked about that one at length. The second one is the — the securitisations themselves following upstream are very tight on their covenant default test. By –[reference to Punch CEO’s] point is taking the cash out to deal with convertible, does take the securitisations very tight for their default test, and actually one of them, Punch B, starts to amortise which makes achieving the DSCR default test that much more difficult. So, the two events on the horizons of the auditors will have to deliberate on and — and — and take into consideration that have real risk attached is the extent of the company to repay — to repay the convertible in full and — and — and, you know, based on the kind of conversations we’ve had before, you could see a potential shortfall of up to 50 million for — for that. The second thing they’ll have to have a look at is — is the tightness of the covenants within the securitisations, particularly within Punch B as it starts to amortise and — and whether again there is comfort there that no default will happen in that time horizon. So, actually, the bulk of the — yeah, the bulk of the cash that we’ve been talking about is all about creating headroom within the securitisations on an ongoing basis, uh, to — to a default, a potential default. Now, if the auditors can’t get themselves comfortable with all of those things then they are required under UK accounting practices to comment specifically on that and then – and that itself will adversely affect market sentiment, that’s the point that is being made.
DAVID EINHORN: Look, you know, if you think that the company is gonna default on the debt and go — become worthless, of course you should sell equity. Not only that, we should sell our equity and — because then the equity just isn’t gonna do so well. Even if you raise equity, you know, it – it unwinds so many of the things that we’ve been believing for the last year and a half, we will need to reassess. And that’s unfortunate because I’ve been feeling very good about this investment.
PUNCH CEO: Yeah, I mean, I am — to make it quite clear, you know, and we’re — you know, I’m the largest private shareholder in the business and I’m very, very clear in terms of my responsibility –
DAVID EINHORN: No, I’m pretty sure — I’m pretty sure I’m the largest private shareholder.
PUNCH CEO: Well, I wouldn’t — got it, sorry. I have got something like Greenlight as any financial institution rather than — rather than an individual, but, I mean, given that your name is ascribed to — to the holding collectively, I will accept that. The — so — it — it, you know, I — I’m trying to balance out the various — the various components of the — of the risk, that’s all I’m trying to do. Happy to have a more detailed conversation with you about some of those — those issues, but it — it is not possible to do that without having to — having to require — having to have you sign an NDA. That’s just a legal requirement and – and we’re happy to do that at short notice. And, you know, we’ll take it from there. As to the — as for the business, I think — actually we’re still, you know, we’re still trading in line with expectations and we, you know, we’re working very hard, as I said, on the — on with the activities that we could — we outlined when we saw [reference to Greenlight Analyst] in New York a couple — a month and a half ago.
DAVID EINHORN: Yeah. That’s good.
GREENLIGHT ANALYST: If you’ve done so well through the first half and since then at buying back debt, why are, in particular, the Punch B securitizations still going to amortise over the next year when you — those tranches could be easily prepaid? Have you been buying back other debt?
PUNCH CEO: Yes, I mean, the answer is — specifically on Punch B, [reference to Greenlight Analyst], the — the — it’s the Punch B amortising debt, the A7, been trading at virtually — virtually at par. So — so actually there’ll be — the — the — the advantage of buying back that tranche of debt is marginal compared to other tranches of debt that are available in the marketplace.
GREENLIGHT ANALYST: Isn’t the advantage of buying back that tranche of debt the ability to avoid a potential cash trap or default?
PUNCH CEO: Of course — of course and that’s why when we measure that…
DAVID EINHORN: [overspeaking].
PUNCH CEO: –when we measure any of the debt that we — we — we do look at, we look at it in terms of its DSCR impact, not just its absolute value. So, of course that’s the fact and as you said, you know, we do not believe that there’s any reason why we would not up — upstream Punch B this year, but we’ve got to look forward beyond that. We’ve got to look at the impact of that. We looked at — look at the trading performance of that portfolio and the — the quantum of debt that we would have to repay to ensure that we don’t trigger a default in due course and then, you know, those are factors that we have to keep in mind. You know that’s as a general point.
DAVID EINHORN: Yeah. Well look, we’re — obviously we’re not in favour of you defaulting on the debt.
GREENLIGHT ANALYST: Is the problem that you’ve sold so many pubs that your cash generating ability is notably lower than historical?
PUNCH CEO: No, no, but it is a function of course. When we’re looking at disposal of pubs, we obviously got to take into account the reduction in EBITDA versus the reduction in debt and the interest and all the – sorry, the DSCR cost of that.
DAVID EINHORN: Right.
PUNCH CEO: And of course — of course what we’ve been doing has been highly Accretive, and that’s why we’ll continue to do that because we’ve been buying back debt that is disproportionately more expensive than the loss of the EBITDA from those sites, and that is very much part of the core strategy and we will continue to do that come what may.
GREENLIGHT ANALYST: We appreciate that. I think that the difference in we do not want you to default is that we do not think that the math follows, that it is Accretive to sell low priced equities to buy back debt at a discount. We just don’t think that math works unless the equity is of course high priced, which we disagree with.
PUNCH CEO: Yeah, but I — I mean, I think on pure maths — on the pure maths of that trade, you’re right. There — there is — you know, there is a point at which that’s not worthwhile. It is a question of what we do with that, and what would be the consequences if we didn’t do that. Those are the — those are the factors we have to take into account. And also for that matter, the quantum, because I mean, if we were suggesting a quantum that was completely out of line, then, you know, which would over-equitise the company, then I of course would understand that that was completely unnecessary.
DAVID EINHORN: Right.
PUNCH CEO: The point I tried to make earlier was that’s never been the way we’ve approached the business.
DAVID EINHORN: Right, and that’s the — that’s the issue. The issue is — is that the equity is trading still as an option, at least in my opinion, and whether it’s a £1.60 option or a 40-pence option, or even a 2 or 2.5 pound option, it’s really an option on a very highly levered capital structure. And so, you know, it seems to me that raising the kind of equity you’re talking about, it doesn’t put the company into a situation where everybody will agree that it’s de-risked. People will still look at it and say it’s a very highly levered capital structure. And so it’ll still have the basic economic risk of the — you know, the UK consumer, and so on and so forth, that is there. It’ll still have the risk of a — you know, of a highly geared capital structure. And I think what you’ll wind up with is some re-rating of the debt but not really much of a re-rating of the equity, and really all we’ll have done is sort of validated, you know, the criticisms of the company that — you know, that we’ve been hearing for a long period of time. Now, obviously, if a company looks at the math on the maturity of the convert and says, “Jeez, we’re gonna be , you know, 20 million pound short or 30 million pound short”, it makes all the sense in the world to not run that right up to the wire in year-end 2010, but to decide that one needs to prepay the entire — pre-fund three — 300 – 400 million pounds of — of stock to give, you know — you know, headroom at such a — at such a dilutive time – Um…Mmm…I’m not really sure that you’re gonna to get the re-rating from whatever risk that you’re [overspeaking].
PUNCH CEO: I think [overspeaking] sort of implies that there would be the ability to do a two-stage process, and of course, markets don’t necessarily like that, but — but be that as it may, I mean, I think, the problem we have we keep — we’re going around in circles. I mean, you know, these — these are talking in principles, and you know I — I – I totally respect your view, you know, our — our approach to the business has been exactly that basis. But, at the same time, you know, we’ve done significant analysis, and we come — you know, we — we have to consider those — that, that analysis is to determine, you know, where that takes us strategically.
DAVID EINHORN: Yeah, I agree with you. You’ve done [overspeaking].
PUNCH CEO: Hear about it more detail, and that detail goes beyond where we can go, so –
DAVID EINHORN: Of course. So, if you’re — if you’re now — look I mean the thing is that we’re not gonna make this decision, you’re gonna make this decision. You guys are the managers, you guys are in charge of the company; we’re shareholders, and we prefer to be passive shareholders and not run the company. If we wanted to run the company, we should be doing something different. We want to run our company, not your company. If you’ve done the analysis, and come to the conclusion that on it’s own, the company is not going to make it, it makes all of the sense in the world to raise equity at whatever the price is, so that you can know that the company, you know, is – is going to make it. Now, what that brings to my mind though is, you know, obviously we haven’t done your analysis, we haven’t done — signed an NDA; I don’t know that we’re going to sign an NDA, because we prefer to just remain investors, but from my perspective, and I’ll be just straight up with you, is that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it’s not going to make it on it’s own is that we’ve just grossly misassessed the — you know what’s going on here. And — and that, that will cause us to have to just reconsider what we’re doing, which is not the end of the world to you. You will continue on even if we don’t continue on with you. Its’ — it’s — it — it really is some — it really is okay, it’s not what we’re looking for, and I’m not trying to browbeat you into doing something that’s going to bankrupt the company because there’s a lot of reasons the company shouldn’t want to go bankrupt. But that — that — that is how I –
PUNCH CEO: 6,000 employees worth, yeah.
DAVID EINHORN: No, no, no, I’m — no, I’m — I’m totally serious.
PUNCH CEO: Yeah, yeah — no, I — I — listen — I appreciate that David. And — don’t get me wrong. As a major shareholder, we have to give you the opportunity to have the conversation and we’re just simply trying to sort of give you that opportunity. I totally appreciate that we’ve had a very good dialogue with [reference to Greenlight Analyst] throughout the time as shareholders and yourself and so, you know, I’m just – we can take that conversation as far as we can on this basis or we can take you further if you want to on – on a different basis. You know, clearly, if we decide to do something and it comes in a, a, — and it’s in the public domain, then we can have further conversations at that time.
DAVID EINHORN: Sure that’s — you know, but that’s — you know that that’s fine. You know, if there’s something that you think, you know, can be explained to us, you know, without crossing any lines, we would — uh, we would love to come to a full understanding, and see the — you know, see the sensibility of what you’re saying. If — if that can’t be done, then unfortunately we’re probably left to, you know, to just draw our own – our own conclusions.
PUNCH CEO: [overspeaking].
DAVID EINHORN: And I – I don’t mean that — I don’t mean that in a negative way, it’s just that it’s just what we have to do.
PUNCH CEO: What I would ask you — I will ask you to do that in fact — if that’s the case, then don’t draw conclusions right now on the basis of this conversation because it’s it is a slightly sort of — sort of a — in-concept conversation rather than one that we’re, you know, than — than anything else.
DAVID EINHORN: Okay, fair enough.
ANDREW OSBORNE: You know, I was gonna say, David, I mean look — and clearly, you know, we’ve — we’ve — there’s a whole lot of analysis sort of behind this and there’s a sort of presentation, if you wanted to, but I mean, we would need to kind of talk your counsel about an NDA if, you know, if you wanted to go down that route which [overspeaking].
DAVID EINHORN: Well, I look at — I don’t — I don’t mind — I don’t mind the concept of an NDA in the sense that we’re not going to, you know, pass on information to others that could, you know, be competitively harmful to you and so on and so forth. I — I am uncomfortable with an NDA that is going to, you know, restrict our ability to, you know, to transact.
PUNCH CEO: We’re — we’re well aware of that, and to the extent anything, we ever did anything like that, we would have to be — give you the — a clear understanding of the timescales, which that — that covers and the, you know, to the fact that the company will cleanse any — any conversation to allow you to trade in due course.
DAVID EINHORN: Yeah, that’s — that’s right.
PUNCH CEO: Well, we’re absolutely aware of that and — and if that’s, you know, and if you want us to consider that on that basis, I’m happy to do so.
ANDREW OSBORNE: We can give you a timeframe.
DAVID EINHORN: So, what would — what — what would that be?
ANDREW OSBORNE: Well, within less than a, kind of a week.
DAVID EINHORN: Within a week? Yeah, we can [overspeaking] we could probably do something with –
PUNCH CEO: We — we have a [inaudible].
DAVID EINHORN: Well, I mean, let me ask you this. Is the decision basically taken? I mean, have you basically decided and it’s just a question of discussing it with people and, you know, having these kinds of conversations and the analysis is done and the decision has, you know, effectively been made; or has the decision not really been taken and you’re just kind of thinking things through and haven’t really determined what you want to do?
PUNCH CEO: No – I mean huge analysis has been done.
DAVID EINHORN: Right.
PUNCH CEO: But no — no formal decision has been making – been made and we’re — we’re consulting with various people of the consequences of that — of that analysis. There — there are — there are other external factors that we have to take into account, as you said, about, you know, 11th hour type decisions and — and things like that which — which mean that, at some point this conversation, you know, we — we were going to have to contemplate this. You know, in the list of things that we would have to we would be — we would be remiss, if we did not consider this in the list of things we have to consider as — as running the company.
DAVID EINHORN: Okay, fine.
ANDREW OSBORNE: Really, it’s fair to say like, consulting with all of the — the major shareholders in terms of taking, you know, taking into account, their views.
DAVID EINHORN: Okay. Is there a — I mean — do — what do the other shareholders you talked to say?
ANDREW OSBORNE: I think, I mean, a num — a number of people have sort of signed NDAs because we had a bit more open conv — conversations. I think it’s fair to say that, you know, broadly, most of the other shareholders are supportive.
DAVID EINHORN: Supportive of what?
PUNCH CEO: Well, I – stuff that’s in the NDA –
DAVID EINHORN: Oh, I see. All right, look, if it’s a question of – let us – let us think this through. Let us — let us — let us think this through whether it makes sense to sign an NDA or not. I’m — I’m not sure that it does.
PUNCH CEO: Look — well, it’s a — I do — I really appreciate the time; I really appreciate the frankness of the conversation and – hopefully we can have further conversation in due course.
DAVID EINHORN: Very good. Thank you guys for — for spending the afternoon with us.
PUNCH CEO: Thanks very much.
DAVID EINHORN: Bye now.
GREENLIGHT ANALYST: Thank you.
PUNCH CFO: Bye.
"This is syndicated content and is approved for release on Wall Street Oasis. Mods, please do not block or delete. Thanks
Bold the important content or create a 2 line summary somewhere.
Yesterday's Dealbreaker article pulled in the important content out into a pretty short, readable format. My readingi boiled down to this:
PUNCH: Hey David, want to get your thoughts on our capital structure - we are thinking about raising equity. DAVID: Whoa, bad idea, you're just saying that because of a recent pop in the stock price. Wait a bit. PUNCH: Will you sign an NDA? DAVID: No. I won't spread this information but I want to be able to transact. Is this a done deal or are you just having conversations. PUNCH: We have done a lot of analysis and are talking to people, but it's not a done deal. Other shareholders have signed on to our plans DAVID: What plans? PUNCH: Plans in the NDA, you'd have to sign one to find out DAVID: Not gonna do it. Wouldn't be prudent at this juncture PUNCH: OK
Thanks for posting this... it's great to see his approach to his investment and the way he deals with the CEO....
Shocking to see a CEO so candid about working for the bondholders instead of the shareholders....
I think he, and all CEO's, have to do this to a certain extent. In a highly leveraged company like Punch, if you don't think about creditors first you risk liquidation, which would certainly leave shareholders worse off. The CEO is basically arguing that the options are a) raise equity to shore up the balance sheet or b) risk default and bankruptcy.
The funniest part of this whole conversation is that the CEO makes it very clear that they are going to raise new equity with almost 100% certainty and THEN asks whether Einhorn will sign and NDA. Outrageous.
Yeah, he has basically said that he doesn't believe he can survive with this much leverage and wants to dilute shareholders as a result... the whole point of running a highly leveraged company is that you have the ability to manage cash-flow and leverage as a core competency so you don't resort to dilution/raising equity. He has basically said that the rationale for running the company this way is not sustainable, so diluting the equity makes his time as CEO easier, but it doesn't really make the equity that much safer... its still a highly leveraged company.
The ML broker was fined £350,000. This article has a bit of detail: http://uk.reuters.com/article/2012/02/16/uk-punch-fsa-merrill-idUKTRE81…
Interesting. Seems like the CEO is just a sheeple to stakeholders...
Einhorn: Market Is Like Charlie Sheen (Originally Posted: 05/04/2011)
Thank goodness there are guys like David Einhorn out there to keep things entertaining. In his recent letter to Greenlight Capital investors, Einhorn explained that he covered several viable short positions because the market is in a cycle with so much cheap money sloshing around that shorting even the weakest of sisters has become a fool's errand.
I feel his pain, and have for more than the past year. While my only current positions in the market are short positions, and they are doing well, they should be doing much better. But as Einhorn points out in the letter, "We believe that this environment is cyclical, and that it will continue this way ... until it doesn’t."Einhorn is still short Moody's (MCO) and St. Joe (JOE), and a couple of unnamed energy technology companies he expects to miss their earnings estimates by a wide margin, but it sounds like he's through tilting at the windmill of irrational exuberance, for awhile anyway.
I certainly wouldn't want to be a hedge fund manager in this environment. For the next several years, wagon loads of cheap cash are going to be chasing every available asset class. It's hard out there for a pimp, at least for a pimp with any sane sense of valuation.
But until the bigger fools get their inevitable comeuppance (again), I guess us "perma-bears" have to follow the great Charlie Sheen's advice and plan better.
Short St Joes vs Long St Joes.
EINHORN VS BERKOWITZ.
That winning line has just been amazing.
you think the equities market is running around like a lunatic wait till you go check out the currency markets the level of insanity in completely out of proportion.
The cheap money ends with QE2. Might be resumed after the market corrects sharply and the Fed is pressured into QE3.
I would short the Euro against the dollar right now btw, lots of headwinds against the Euro that aren't getting press right now, plus with QE2 over the dollar will look good. I'm market neutral on equities and short commodities.
agree with you on the Euro... it's not going to hold up at 1.45-1.50 to the dollar for very long.
The Einhorn Effect (Originally Posted: 09/24/2012)
Some of you might have seen this on WSJ a couple days ago. I just saw it today and I thought I'd share it:
http://s.wsj.net/public/resources/images/MI-BQ902_EINHOR_G_201209171821…
Pretty interesting infographic.
There's one reason why I trust almost anything Einhorn publicly says. I read his book, "Fooling Some of the People All of the Time."
When there's a cloud of suspicion over an expert stock picker and whether he has equal access to information as the rest of us... that adds a whole another dimension to his story.
Thanks for this.
I subscribe to the idea that he uses the mosaic theory extensively to his advantage. The thing is sometimes the line between mosaic theory and material nonpublic information is very blurry
People have a hard time understanding the difference between asking the right questions and straight up insider trading. Just because the information isn't delivered right to your doorstep in person by the CEO doesn't make it insider info, and the fact that these guys do in-depth research for a living means they're going to dig up a lot more than the public is going to know about a business. The guy understands how businesses work and has the experience to know what questions are important to ask and when someone is purposely avoiding a particular piece of information. This stuff is commonplace for experienced analysts and like someone mentioned, you can easily get a sense for things that would be nonpublic if said explicitly, but management can unintentionally provide us with a tell. The fact that the average investor isn't interacting with management and getting the opportunity to grill them and try to get a sense for stuff that could potentially be nonpublic is probably upsetting for most people but definitely not insider trading.
Einhorn calls out Ballmer (Originally Posted: 05/25/2011)
Yep. Despite having his short positions wreak havoc on his P&L, Greenlight Capital’s David Einhorn was his usual badass self today at the Ira Sohn conference, where he decided to take on another big name in the business world…
I couldn’t agree more. This isn’t the first time an investor has addressed their dissatisfaction with Steve Ballmer; truth is nobody really liked him since he took the spot in 2000. It’s not that he’s a bad CEO; it’s just that he’s not a good one. Every dollar invested in MSFT back then is pretty much still a dollar today, not counting inflation. He’s made myriad missteps with their products and competition, especially against their rivals Apple and Google, which Einhorn happily highlighted with this quip made years ago.
Microsoft was once a dominating, 800 pound Gorilla that was ready to build Skynet, under Ballmer however, I don’t think it will ever be more than just another mammoth tech company.
How about you monkeys? Do you think Einhorn’s right as well?
Curious that he’s actually bullish on the company despite his aversion for the CEO.
Or do you actually think Ballmer has a few things up his sleeve?
Have a good one WSO.
I am bullish on MSFT and think they are/have to make some large game-changers to stay competitive. Relatively the same stock price for the last decade...cmon? You have to change!
I do like their new mobile operating system upgrades that launched this week and think this will only get better. Also, their enterprise initiatives are going to give RIM a run however google's getting there too
Will be very interesting to see how they weather this storm within the next year Giving a free 4gb xbox with a laptop isn't going to cut it
Imma drop some coin into them though
Price is what you pay; value is what you get. Look at MSFT's growth in revenues and earnings historically over any period you want. Any way you look at it, the company has performed exceptionally. And the company has a moat like a castle, ignoring the distant, nebulous threat posed by the "cloud revolution." On an EV/EBIT basis, MSFT is now as cheap as it was in September 2009, at the heart of the market crash. Eventually the market will wake up.
Disagree with above. Ballmer needs to go. I got tons of monkey shit for my last MSFT post but I'm extremely bearish if this company doesn't change its management fast. First of all, they missed out on an entire development cycle. Literally, they missed the ball on mobile computing. Windows 7 phone might have some growth with the Nokia deal (check out CIO magazine today). The reality is that Windows controls all product decisions in the company, and the company is not able to leverage its other assets/products (like Office) without interoffice politics from Windows groups.
Take a look at Kinect. When the product was released, many developers (outside of Microsoft) "hacked" the system to make it do things beyond playing games. Microsoft's initial response was to discourage these practices. This is an old school way of thinking: instead of allowing third party developers to come up with new uses for the product, Microsoft initially aimed to take complete control of the product, refusing to let them do so. After some haggling, MSFT finally agreed to allow outside developers to build new applications for the product.
I think this old school style thinking comes from their management. MSFT was never really an innovator; they simply took good ideas and found a way to sell them. Its in the company's blood. Look at Gates. Many of the contributions MSFT is known for today are just improvements upon other products (GUI, Office Suite), with clever marketing/strongholding business practices. Ballmer lives in that world (he has been with the company since the beginning), and doesn't understand the way MSFT needs to change in order to compete in this new marketplace.
Innovation is key to growth. I'm fine with MSFT missing out in the iPod crazy. But they dropped the ball big time on their phone strategy, their cloud strategy is in disarray, and the enterprise sector is coming under some slight pressure. There's still a lot of promise down the road for MSFT, but Ballmer shouldn't be leading the ship.
Balmer is like a cancer.
MSFT hasn't done anything meaningful for its shareholders in 10 years. Meanwhile, Apple has gone from being a joke to a power player, Microsoft went from having the lead in mobile devices (Windows CE on PDAs before smartphones blew up) to now a very minor player behind Google, Apple, RIM, and Nokia
Einhorn: Can he save the Mets? (Originally Posted: 05/31/2011)
David Einhorn: Partial Owner of the Mets?
http://bats.blogs.nytimes.com/2011/05/30/einhorn-says-deal-with-mets-is…
We had a discussion sometime last week about whether buying a sports team is a prospect that makes sense. Well, it appears our good friend David Einhorn of Greenlight Capital is responding to the bullpen call for an investor to prop up the Mets. (Where's Midas? I'm sure he is celebrating!)
Famous for shorting Lehman Bros. stock in the run-up to its collapse, Einhorn is prepared to make an expected $200 million investment in the team, a minority stake. It’s actually his personal money, not from his $7.8 billion hedge fund. “I have no plans to sell this investment,” the Financial Times quoted Einhorn. “I expect to hold it for a very long time…it’s not a professional investment, it’s a personal investment.” Buy and hold? Interesting play.
Yet, here’s what Davey boy is faced with: • FY2010 loss of $51 million • FY2011E loss of $70 million • Approximately $450 million in debt • Uncertainty around contracts for key players
What do you guys think? Is Einhorn onto something? Or is he being unrealistic? Is the volatility associated with a sports franchise any similar or different from owning a company? Could this set an example for other financially troubled teams in both Major League Baseball and other sports?
Or, to quote The Who, is this a bargain…the best I’ve ever had?
I think when you have that much money, you start to look for cool shit to do. This would qualify as cool shit with the potential (maybe?) for some profit if he can turn it around.
Isn't there a clause in the deal that would allow Einhorn to have a majority stake in the team in 2013?
He didn't comment about that. But it would definitely be a good option to have in case he runs into problems with team management--which is probably inevitable.
http://www.reuters.com/article/2011/05/29/us-einhorn-nymets-idUSTRE74R2…
I really do hope that they can turn things around. I keep hearing rumors of Reyes going to the Giants or some other team. . .how can the Mets even think about not resigning or trading the man who is essentially one of the faces of the team?
I'm also sick of the Wilpons. How can you publically go out and berate your own players.
Interesting article, GD. But even if he does become majority owner, he'll still have to deal with that $1 billion lawsuit that's still pending as well as the losses from the Madoff scandal. I wonder if either of those things affected the valuation in any significant way...
Undisclosed location. Winning. Seriously though, Einhorn will be running the show within 5 years. Just from the preliminary stuff I have read, he's got Wilpon over a barrel. He's got himself insulated (dare, I say fully hedged) from the risks stemming from the Madoff association. He's already dropped a few subtle comments in interviews that you definitely wouldn't if this were just a prop up the shop (see what I did there?) scenario.
Overall, if you're a Met fan you have to be happy. In an odd way though, I feel for Fred Wilpon. I am older than most of the guys on this board and I have suffered through some inexplicably difficult years in orange and blue. Hell, Shea was so dead at one point that we snuck in quarter kegs in the bottom of a wheel chair. But I digress...
Fred Wilpon's the type of rags to riches NYC story that the typical monkey aspires to become. It's a shame he's going out like this, even though I have flung shit at him over the years as if he was SirBankalot or something. I doubt we will ever know whether he was implicit in the Madoff thing but one thing's for sure... he's gonna pay for it.
As far as the Mets go...New York City National League baseball franchise...much like real estate... they ain't makin' any more of it. What I'd be more concerned with as a Met fan is the shitstorm WIlpon talked up in that interview. Combine his words and the last week or so of action and I am beting Jose Reyes is going to want Pujols money. If Einhorn can talk, as well as he banks bread and lets those dollars talk...the Mets will be fine.
Whoa, whoa--is that optimism I see, Midas?
I mean, Reyes has been injured so often (he's on bereavement now too, right?), I think that'll affect how much of a price he'll be able to command. And honestly, that lawsuit is so ridiculous it isn't even funny; it's obvious that the team can't pay, at least not now.
Yeah, what's happening to Wilpon sucks. Bad break for sure, but a guy who has had that kind of success in the past will probably have an easier time recovering. Here's hoping he lands on his feet, whatever happens--and maybe some of your winning can be transferred to the orange and blue.
Reyes does have a history with injuries...but he's absolutely killing it this season. It'll be interesting to see how his contract works out.
D. Einhorn fined £7.2 million (Originally Posted: 01/25/2012)
Do you see this guys ? http://blogs.wsj.com/deals/2012/01/25/the-fsas-statement-on-the-einhorn…
I know that a lot of people on this board love the guy and I'm interested to hear their thoughts on this one.
I really don't think he did anything wrong here. As someone who was victimized by the overzealous fundraising of portfolio companies (and all the subsequent dilution) over and over again, I think you have an obligation as a major shareholder to keep your ear to the ground and find out ahead of time if a company you own is going looking for cash.
Raising money through dilution is never good for a company's stock price, and you owe it to yourself to dump it before the word's on the Street.
same sequence of events happened with mark cuban.
Ed,
The fact that it was the right investment move doesn't exonerate him at all. In fact, the action is all the more unacceptable. If he had, through his own research of the public record, concluded that Punch Taverns plc was about to dilute its shareholders' positions, then he's entitled to whatever loss protection he can come up with. That doesn't seem plausible at this point. He didn't "find out" or figure it out over time; he found out from a broker.
I, like many others, think his treatment of Allied and Lehman was the stuff of legend, but in this case, it's hard to be sympathetic.
It all comes down to what you consider due diligence. I've fostered relationships with CEOs of companies I've owned and they've said things to me in conversation that could be considered material non-public information. It's a fine line between due diligence and insider trading.
Dealbreaker did an excellent summary here
http://dealbreaker.com/2012/01/it-may-surprise-you-to-learn-that-reason…
My personal take? The guys is way too smart, has too many lawyers, and more than enough money to risk doing something illegal for $10mm.
Wait what !?
"Under UK law that distinction doesn’t seem to apply: if you trade on inside information, you’ve committed “market abuse,” and are in trouble. It doesn’t matter if you agreed, or didn’t agree, or were or were not asked to agree, to keep it confidential or not trade on it: if it came from inside, and isn’t public, you can’t trade. [UPDATE: As Einhorn pointed out on his call about the matter, UK precedents are not so clear - in previous insider trading cases there always was a breach of a wall-cross. But the US "breach of a duty" standard does not seem to explicitly apply so, y'know, first time for everything.]"
So then theoretically-if I didn't want Einhorn to trade my stock-I could just call him & say "hey, we're looking to raise capital." Before he says anything. Even if he doesn't agree to wall-cross (?), TOO BAD, I already told you non-public information.
What is stopping a broker from just calling a PM and shouting non public info into the phone? Too late! You heard NPI, can't do anything about it!
Comments Eddie/grayfox ?
Interesting incident. I wonder if it has basically set new precedents for how people are supposed to conduct themselves in similar situations.
Thoughts?
Einhorn Crushes HLF (Originally Posted: 05/01/2012)
How funny would it be if he was asking questions to validate a long thesis? He's getting the stock 20% cheaper.
http://www.businessinsider.com/david-einhorn-herbalife-2012-5
I own HLF. Bleeding badly today. I am holding on to it though. Good idea?
Will the company disclose those distributor percentages tomorrow?
I would LOVE to work for einhorn!
Me, you, and just about every single other equity analyst. These guys are more powerful than Buffett.
My initial observation was that the move today was irrational. I'm familiar with how successful Greenlight has been with their shorts (Allied, Lehman, Green Mountain, etc), read his book, and would not want to be on the other side of a trade. That being said his questions were relatively innocuous - the distributor mix at the low end is important to the growth of the business but is not a GAAP line item that would be skewed and indicative of accounting fraud. Most of the big ones he has nailed have been actual accounting frauds. There is a very legitimate chance that the CFO digs up the relevant figures, they have deteriorated slightly but there is nothing illicit going on, and the stock slowly recovers.
All of that being said, I doubt Einhorn himself would be on the call unless something big was in the works. I see this playing out one of two ways.
-Greenlight is short. HLF gets back to him and other investors with the distributor mix and is very transparent about things. The stock suffers a bit but many of the shorts cover. Einhorn made a nice little profit and the world goes on its way.
-Greenlight is short. HLF isn't forthright with disclosure on the distributor mix or there are more accounting issues. There are 15 days until the Ira Sohn conference. This could very well be a grace period for HLF to make things right. If not, Einhorn goes into full out assault mode and HLF gets ripped to shreds at the conference. If a few questions on a call are enough to send the stock down 20%, I can't imagine how ugly it would be off of a full short thesis.
The idea of him being long and manipulating the price for an entry point seems like a very low probability event to me. He seems like too much of a stand up guy. I doubt it would be legally awry, but after the whole mess with Punch I don't think they want another headache.
Nice. Very curious to see how this ends up.
Great analysis. The 20% drop is the market discounting the very real possibility that Einhorn is going to present a damaging thesis against HLF at the upcoming conference.
I find it amusing that HLF just so happens to report its quarterly earnings so shortly before the Ira Sohn conference. I think Einhorn is onto HLF and is going for an expose. The timing of the earning call allows him to give everybody a heads up on what he is up to.
HLF stumbled again today following GMCR's miss last night and the buy back announcement is doing little to reverse the decline. GMCR's earning miss last night vindicated Einhorn's thesis on that one and presumably lends further credence to the possibility that Einhorn is about the strike again. Can't wait until the Conference to find out...
I listened to it and read the scripts too. I do not understand why the stock dropped 20%
Because Einhorn was the on the call and not one of his analysts. It was meant to make a point - the questions were somewhat inconsequential/innocuous but the tone was obvious.
GF,
I did not mean to imply that Einhorn is trying to manipulate. I meant that its possible he was trying to develop a long thesis. His questions were pretty simple and that response from management did not sound like they're trying to avoid the issue.
Anyone on here submit an idea to Ira Sohn? I'm thinking about doing it.
Multi-level marketing stocks have defied gravity until now. On a purely numerical basis, they look very attractive, but it isn't difficult for someone to realize that fundamentally these businesses shouldn't be allowed to exist. 99.9% of distributors don't make money, and a majority of products are bought by those distributors, not end customers. These stocks have been putting up consistently good numbers, beating quarter after quarter, and in a market that is hungry for growth (especially in EMs) people will turn a blind eye and buy it. The irrationality has been going on for a while. It doesn't take much of a jolt to wake people up. It's not about the specific question that was asked. This is a situation where everyone knows the game will be up at some point, so when people see the first hint of smoke, they rush for the door because they don't want to be the last one out.
EDIT: Just saw the link.
Edit: Can someone please explain to me what does it all mean in a simple manner. I think I am missing on what the significance of the questions and answers are.
Thank you
His question has to do with two things primarily: 1) Distributor mix. It's important to know how a company gets its products to end-users, because this can have implications for sales timing, revenue recognition, working capital, and margin. Any time you have a non-typical relationship with your suppliers or distributors, there's potential for earnings manipulation because you can do things like use your leverage to force product into a distribution channel, creating additional sales for you in the short-term but "stuffing the channel" with excess supply in the longer-term.
To use a hypothetical example here, if HLF has 10,000 ladies who host herbalife parties and are selling it to their friends and family, HLF can "stuff the channel" by forcing or incentivizing them to buy, say, a 18-month supply upfront instead of a 12-month supply. This creates additional sales for HLF now (which they likely recognize immediately because they've moved the product and gotten paid for it) but means that those sales won't reoccur for over a year. (I don't know enough about HLF's business model to know if this is what's happening, just an example.)
For another example of why this sort of thing is important, read up on Greenlight's thesis on GMCR. A big part is growth potential (or lack thereof) but also important is the atypical relationship with their key vendor.
2) Quality of reporting. HLF used to disclose the distributor break-down; now they don't. The cynical interpretation is that the distributor mix has changed for the worse and the company is trying to disguise/hide this.
Dealbreaker has a solid run-down as well: http://dealbreaker.com/2012/05/david-einhorn-is-doing-all-of-his-manage…
anybody buying may the 19th puts on HLF ?
Yeah and when Einhorn saw GMCR this morning
http://wheninfinance.tumblr.com/post/22319900885/when-gmcr-dropped-40-t…
BAGL up for strategic review up 28% after hours... Greenlight owns 63%
GMCR down 40+% today....
Very bearish price action in HLF today, no bid for the stock despite the buyback announcement.
Incredible. How can you not wonder, "How does he do it?!"
Thanks for post. It’s really informative stuff. I really like to read.Hope to learn a lot and have a nice experience here! my best regards guys!
By the way, do you guys have any idea what their buying/shorting strategy in order not to be followed by the average investor ? Because as soon as one broker/bloomberg employee sees what greenlight capital is doing, copying their moves could potentially mean big $$.
How do globally known hedge funds and money managers "cover their tracks" in general ?? Do they temporarily open dummy companies to do important trades and dismantle them after a profitable trade?
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