Saputo shares fall after short selling attacks takeover strategy

A report by Spruce Point Capital puts Saputo as a bloated, aging cheese empire currently in a phase of “decline and rebuild.”

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Saputo Inc. stockholders were having a pretty good year. Shares of the Montreal-based dairy giant are up more than 10% this year, well ahead of the S&P/TSX Composite, which is down about 5%. Earnings before interest, taxes, depreciation and amortization in the second quarter were 30% higher than in the same period last year, according to the company’s latest financial report.

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Wall Street sellers seem set to ensure Saputo’s year ends on a bad note.

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Saputo’s share price fell a whopping 7.8% on November 29, after Spruce Point Capital Management LLC, an investment manager holding short positions in Saputo, released a 147-page report. It is currently in the phase of “decline and restructuring”.

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“We believe Saputo’s aggressive global expansion through M&A has failed, reducing transparency and increasing financial stress,” said Spruce Point, adding that if Saputo’s share price falls, He added that short positions can be financially profitable.

We believe Saputo’s aggressive global expansion through M&A has failed, reducing transparency and increasing financial stress.

spruce point

Short selling has a mixed reputation. They are gamblers who make trades to borrow stocks or other financial assets that they think are too expensive, and then bet that they can succeed in trading by later purchasing the assets at a lower price. Some believe that short selling is good for the average investor because they have the resources to hold big company managers accountable. At the same time, these short sellers have an incentive to exaggerate and amplify their findings in order to provoke an increase in stock prices.

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It is unknown where the spruce points lie on that spectrum. What’s clear is that when Saputo’s stock closed at $32.26 per share, some investors took the company seriously. That’s 6% lower than its previous close and 10% lower than its Nov. 17 closing, when the stock reached its highest level since 2018. Summer 2021.

Spruce Point estimates that there is a 40% to 60% “downside risk” to Saputo’s stock if investors perceive that Saputo’s global expansion has not paid off as promised by management. I said yes.

Saputo countered in a statement, accusing Spruce Point of not engaging company executives during the investigation and accusing the shortseller of misrepresenting the facts. It is our opinion that it is misleading and contains misleading or inaccurate information intended solely for the benefit of the author,” the company said in an email.

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The Spruce Point founder dared to make Saputo more specific.

“For us, that statement is a pretty boilerplate statement,” said founder and CIO Ben Axel.

Saputo is of the opinion that this report is baseless and contains misconceptions and inaccuracies.

sapt statement

Spruce Point came after the Canadian champion previously. Lightspeed Commerce Inc. and he made profitable bets against Nuvei Corp. in 2021, according to the Globe and Mail, but against Dollarama Inc., Canadian Tire Corp. Ltd. and GFL Environmental Inc. The campaign didn’t do too well.

Of nine analysts tracked by Bloomberg LP, six rated Sapt as a buy, two viewed it as a hold, and one recommended a sell, according to the financial data firm. reported by the news department.

Since Lino Saputo Jr. succeeded his father and founder Lino Saputo as CEO in 2004, Saputo has made a series of acquisitions in Canada, the United States, Australia and the United Kingdom. . The company now boasts that its facilities around the world process about 11 billion liters of milk annually.

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Spruce Point said the acquisition has not paid off.

Spruce Point said in a news release: “Spruce Point believes Saputo has multiple acquisitions around the world that have overpaid companies that ultimately failed to stimulate organic growth.”

At the same time, Spruce Point has made a “subtle but impressive statement” that it has lost ground in its home market of Canada and does not have a strong enough plant-based dairy brand to stay ahead of changing consumer tastes. It claims to show “evidence”. “Less Dairy Consumption”

According to the report, the company has quietly stopped calling itself Canada’s “major dairy processor,” preferring instead to call itself “a leading cheese maker and liquid milk and cream processor.” That change appears to have occurred between June and July 2019, according to various versions of the “Canadian Sector” on Saputo’s website archived by WayBack Machine.

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Saputo shares fall after short selling attacks takeover strategy

Source link Saputo shares fall after short selling attacks takeover strategy

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