The Bear Cave #140

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

Oct 23, 2022

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New Activist Reports

Hindenburg Research published on Establishment Labs Holdings (NASDAQ: ESTA — $1.26 billion), a breast implant and medical device company. Hindenburg highlighted that the company claims its implants are much safer due to "revolutionary technology" backed by "rigorous science" and noted the company has big ambitions for FDA approval and U.S. expansion. However, Hindenburg found numerous safety issues and irregularities with the company’s implants. For example, the company’s advisor for its U.S. launch, Hani Zeini, was sued by the SEC in 2018 and is currently serving a 5-year director and officer ban. Hindenburg also noted that some doctors stopped using the implants over safety concerns and some authors of the company’s scientific research have undisclosed financial conflicts.

Hindenburg concluded,

“ESTA is priced as if dominating the U.S. market is a sure thing, largely over its claims of superior safety. We expect its U.S. launch will flop and its stock will see 90%+ long-term downside given the significant risks and its stretched balance sheet.”

Establishment Labs Holdings stock fell ~9% last week.

Spruce Point Capital published an update on WD-40 Company (NASDAQ: WDFC — $2.06 billion), the San Diego-based maker of WD-40. Spruce Point said the company’s “financial condition is the worst in decades and three key executives are departing.” In addition, Spruce point predicted 45% to 60% downside due to weakness in the core business and “over 40% exposure to the UK and Europe and their depreciating currencies.”

Overlooked Alpha published on European Wax Center (NASDAQ: EWCZ — $908 million), a franchisor of hair removal and waxing salons. Overlooked Alpha raised concerns about the company’s leveraged balance sheet, high valuation of 19x EBITDA, and how a recession could have an outsized impact on its salons. European Wax Center is down ~35% since its August 2021 IPO.

Recent Resignations

Notable executive departures disclosed in the past week include:

CEO of Maravai LifeSciences Holdings (NASDAQ: MRVI — $4.26 billion) was placed on paid leave just two weeks into the job “following the issuance of a temporary restraining order by the Delaware Court of Chancery preventing him from working for the Company pending further order of the Court in a lawsuit filed against him by his previous employer alleging violation of a noncompetition agreement.” The company is down ~45% since its November 2020 IPO.
CEO of Turning Point Brands (NYSE: TPB — $372 million) resigned after nine months. The company is audited by RSM LLP and has fallen ~55% over the last twelve months.
CEO of Global Indemnity Group (NYSE: GBLI — $303 million) “is no longer an officer or director” after one and a half years. The company’s Chief Operating Officer also departed this week after a little over one year.
CEO of Green Dot Corporation (NYSE: GDOT — $966 million) was terminated after two and a half years and resigned from the board. Last month, the company’s General Counsel retired after two years and the company’s Vice President of Retail resigned in July.
Chief Growth Officer of Stryve Foods (NASDAQ: SNAX — $13 million) resigned after five months. The company is down ~96% since its July 2021 SPAC merger.
Chief Operating Officer of Azenta Inc (NASDAQ: AZTA — $3.14 billion) departed after nine months. The company is down ~60% in the last year.
Chief Operating Officer of Array Technologies (NASDAQ: ARRY — $2.28 billion) resigned after one year. In addition, the company’s Chief Human Resources Officer departed in August and last month Jehoshaphat Research criticized the company’s “bill-and-hold” revenue recognition policy and other accounting games.
Chief Accounting Officer of Amalgamated Bank (NASDAQ: AMAL — $711 million) resigned after one year “to pursue another career opportunity.” Two months ago, The Bear Cave published on the company and wrote, “the departures of Amalgamated’s Chief Risk Officer, Chief Credit Risk Officer, Chief Operating Officer, and General Counsel… should be a concern for investors.”
Chief Operating Officer of Olaplex Holdings (NASDAQ: OLPX -- $2.63 billion) resigned after three years and left the board. In August, The Bear Cave wrote that the company “faces aggressive new competition and waning social media support.” Since then, shares have fallen ~75% on lower guidance and disappointing sales.

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

What to Read

“Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates” (DOJ)

“‘Section 8 is an important, but underenforced, part of our antitrust laws. Congress made interlocking directorates a per se violation of the antitrust laws for good reason. Competitors sharing officers or directors further concentrates power and creates the opportunity to exchange competitively sensitive information and facilitate coordination – all to the detriment of the economy and the American public,’ said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division. ‘The Antitrust Division is undertaking an extensive review of interlocking directorates across the entire economy and will enforce the law.’”

“Short Seller Chanos Who Exposed Enron Fraud Starts Hedge Fund With Daily Liquidity” (Bloomberg)

“Chanos, who put successful short bets on companies such as Enron and Wirecard AG, has joined up with London-based Green Ash Partners to launch an equity long/short hedge fund. The fund began trading this month with about $20 million of internal capital, according to a statement… ‘There are many trade opportunities that are percolating around the Enrons of today,’ the two firms wrote in their presentation for the new fund. Frauds that were $2 billion to $3 billion in size in the 1990s are 10 times that size today, they wrote.”

“Ammo’s Recently Settled Lawsuit is Full of Insights and Possibly Some Smoking Guns” (310 Value)

“In the last couple of months, several issues have come to light regarding Ammo Inc. (“Ammo”) including: a possible undisclosed related-party transaction, employing a senior executive under sanction by the SEC, employing a senior executive that may have been recently disbarred, and a whole host of allegations from a former board member, as detailed in Edwin Dorsey’s Substack article. What is shocking, is that the more one digs, the more troubling information one can find…”