The Bear Cave #114

New Activist Reports, Recent Resignations, and Tweets of the Week

Apr 24

Welcome to The Bear Cave — your weekly source of short-seller news! If you are new, you can join here. Please hit the heart button if you like today’s newsletter and reply with any feedback.

New Activist Reports

Kerrisdale Capital published on Digital World Acquisition Corp (NASDAQ: DWAC — $1.85 billion), a SPAC attempting to merge with Donald Trump’s Truth Social platform at a ~$8 billion valuation. Kerrisdale wrote, that Digital World Acquisition Corp “will never secure the necessary regulatory approval to close its proposed merger” and cited an active SEC investigation and increasing scrutiny on SPAC mergers. In addition, Kerrisdale highlighted that ARC Group, a Shanghai-based sponsor behind the SPAC, has been repeatedly sanctioned by the SEC. Kerrisdale concluded,

“With each passing day, the truth becomes harder to deny; a merger between two sketchy companies that is already taking too long is likely headed for collapse. We value DWAC at the cash held in trust: $10 (-80%).”

Iceberg Research published on Rockley Photonics Holdings (NYSE: RKLY — $456 million), a UK-based startup that is developing biosensors for smartwatches and medical devices. Iceberg wrote that “the company is experiencing technological roadblocks and will soon face a cash crunch and heavy dilution.” Iceberg highlighted long delays by Apple in rolling out similar biosensor technology and cited that a major joint venture partner of Rockley, Hengtong Optic-Electric, was recently sanctioned by the U.S. Department of Commerce. In addition, Rockley signed a “vulture financing” deal with Lincoln Park Capital because of a nearly 50% redemption rate in its SPAC closing process. Rockley is down ~75% since its August 2021 IPO.

Recent Resignations

Notable executive departures disclosed in the past week include:

CFO of Energy Vault Holdings (NYSE: NRGV — $1.92 billion) “separated” from the company after one year. The company is up almost 40% since its February 2022 SPAC merger.
CFO of Blackrock Capital Investment Corp (NASDAQ: BKCC — $312 million) resigned after one and a half years. The company has had four different CEOs and four different CFOs in the last ten years.
CEO of Algoma Steel Group (NASDAQ: ASTL — $1.14 billion) resigned after three years. The company is flat since its October 2021 SPAC merger.
Co-CEO of Archer Aviation Inc (NYSE: ACHR — $936 million) resigned after three and a half years. The company is down ~60% since its September 2021 SPAC merger and also resigned after only six months in January 2022.
CEO of Dentsply Sirona (NASDAQ: XRAY — $8.99 billion) was “terminated” and “ceased to serve as a member of the board” after four years. Last week, the company’s CFO also resigned.
Seven individuals resigned from the board of Redbox Entertainment Inc (NASDAQ: RDBX — $107 million), one after only 40 days. The company is down ~70% since its October 2021 SPAC merger.
Axelle Henry notified the Vita Coco Company (NASDAQ: COCO — $578 million) of her intent to resign from the board and audit committee “following the 2022 Annual Meeting of Stockholders in June 2022” after just one year. The company is down ~25% since its October 2021 IPO.
General Counsel of Aurora Innovation (NASDAQ: AUR — $5.22 billion) “informed the Company of his intention to leave the Company effective June 3, 2022.” Aurora Innovation is down ~55% since its November 2021 SPAC merger.
Chief Legal Officer of Weave Communications (NYSE: WEAV — $323 million) notified the company of her intention to resign “in order to pursue a new opportunity” after just one year. The company’s Chief Operating Officer also resigned this month and the stock is down over 70% since its November 2021 IPO.
Chief Commercial Officer of Hasbro (NASDAQ: HAS — $12.3 billion) resigned after a little over two years. Alta Fox Capital is currently running an activist campaign at the company.

Data for this section is provided by VerityData from VerityPlatform.com

What to Read

“Weekend thoughts: advice on finding an investing job, life call options, and starting a Substack” (Yet Another Value Blog)

“The number one piece of advice I give to anyone is the same: start an investing Substack under a pseudonym. Stick with it, and publish one article a week for ~6 months. Why’s that my advice?...”

“Idea Brunch with Ben Claremon of Cove Street Capital” (Sunday’s Idea Brunch)

“Our checklist includes a list of red flags that we have found to be, at times, signs of a bad culture or a management team you don’t want to partner with. Here are some examples: A CEO who doesn’t even live in the city where the company is located, someone who treats his or her assistants and secretaries badly, a leader with a large corporate jet allowance disclosed in the proxy, constant restructuring and layoffs even in good times, compensation that consistently appears egregious relative to the size of the company and the compensation of its peers, two pages’ worth of related party transactions in the proxy, and the majority of equity compensation is time-vesting without any performance requirements.”

“Short-Selling Claims Put Accusers on Defense in Delaware Court” (Bloomberg)

“Two investment firms filed a class action suit against a telecom company, claiming investors were short-changed during its $3.1 billion sale. Then, the telecom company claims, they used the lawsuit as a kind of Trojan horse to gain access to confidential information, which helped them execute millions of dollars in short sales and other trades.”