🐻The Bear Cave #52🐻
New Activist Reports, Vista's Pluralsight Problem, Tweets of the Week, and More
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New Activist Reports
Hindenburg Research published on Clover Health (NASDAQ: CLOV — $1.86 billion), a health insurance company that went public through a SPAC in January. Hindenburg alleged the company was under an undisclosed DOJ investigation and highlighted high executive turnover, related-party dealings, and price-gouging behavior by Clover’s CEO. Hindenburg also disclosed,
“We have no position (short or long) in Clover Health because we think in this moment for public markets, it is more important for people to understand the role short sellers play in exposing fraud and corporate malfeasance.”
In a response posted on Medium, Clover confirmed the DOJ inquiry and wrote, “Clover’s mission is to improve every life.”
Snow Cap Research published on Bingo Industries (ASX:BIN — AUD$2.08 billion), an Australian waste management company. Snow Cap Research alleged the company has aggressive revenue recognition policies and is breaching environmental guidelines.
Grizzly Research published on National Beverage Corp (Nasdaq: FIZZ — $5.10 billion), a soda company. Grizzly Research alleged “horrific corporate governance” and said the company’s best-selling product, La Croix, is a fad. FIZZ stock doubled in January but has since fallen about 40%.
Kerrisdale Capital published a long thesis on Up Fintech Holdings (NASDAQ: TIGR — $3.69 billion) and called the company “the Robinhood of China.” Kerrisdale highlighted that the company, founded in 2015, currently has over one million users and caters to tech-savvy millennials with an easy sign-up process. Kerrisdale also highlighted that the company has no Wall Street sell-side coverage.
Alex Pitti published a Seeking Alpha article on Arcimoto (NASDAQ: FUV — $1.09 billion), an electric vehicle company that has sold a total of 31 units. Arcimoto stock is up roughly 1,700% over the last year.
Citron Research tweeted bullishly about Conversion Labs (NASDAQ: CVLB — $513 million), a telehealth company:
Vista’s Pluralsight Problem
In December of last year, Pluralsight (NASDAQ: PS — $3.17 billion), an online training company for IT workers, announced that it would be acquired by Vista Equity Partners for $20.26 per share — only a 7% premium to its closing price. Investors are questioning the circumstances around the deal.
In January, Eminence Capital, which owns 5% of the company, published a letter criticizing the deal:
“When reviewing the facts and circumstances surrounding this Merger Agreement, we can only come to one conclusion: motivations completely at odds with maximizing shareholder value drove a sham process designed to support a pre-determined decision to sell to Vista at an artificially low price in order to benefit management and Vista at the expense of shareholders.”
Eminence highlighted that “[Pluralsight] feverishly instituted a process designed to demonstrate a fair market test and less than four weeks later demanded that all interested parties, except Vista, submit a final bid.” In addition, Pluralsight gave investors lower guidance shortly before being approached by Vista about an acquisition.
Another investor, Akaris Global, also opposed the deal in a letter to the Pluralsight board and highlighted that Pluralsight’s founder and CEO, Aaron Skonnard, had voting control over the company through supervoting shares.
Other peculiarities abound.
For example, the peer group used by Qatalyst Partners for its fairness opinion trades at an average of 8.5x revenue, while Pluralsight’s peer group as defined by its own compensation committee trades at around 17x revenue. One of the peer companies chosen by Qatalyst Partners for its fairness opinion was Box, a file-sharing company.
Brian Cayne, a partner at Qatalyst and co-head of its Enterprise Software Group, previously worked at Vista.
In December 2018, Vista acquired Mindbody, a fitness software company. In litigation around the deal shareholders alleged that Mindbody provided positive financial data to Vista, but not to other bidders. The suit remains ongoing and one legal publication recently wrote,
“The court held that it was reasonably conceivable that Stollmeyer [Mindbody’s CEO] tilted the sale process in favor of Vista (i) by lowering the Company’s guidance on the November 2018 earnings call to depress its stock to make it a more attractive target for Vista and (ii) by providing Vista with timing and informational advantages in diligence and in the go-shop process.”
Mindbody’s CEO also allegedly pushed for Qatalyst Partners to serve as a financial advisor for the deal.
Pluralsight shares currently trade at a small premium to Vista’s bid.
Read The Bear Cave’s previous coverage on Vista:
Potential valuation issues at portfolio companies (link)
Potential related party dealings (link)
Potential conflicts at Vista (link)
What to Read
“Jeff Immelt Oversaw the Downfall of G.E. Now He’d Like You to Read His Book.” (New York Times)
“There often seems to be a caveat, something to explain why it wasn’t all his fault: He was working with the best information he had. McKinsey had done a study. Goldman Sachs had offered its assurances. The markets moved in unpredictable ways.”
Jeff Bezos Letter to Employees (Amazon)
“Keep inventing, and don’t despair when at first the idea looks crazy. Remember to wander. Let curiosity be your compass. It remains Day 1.”
“People Are Worried About Payment for Order Flow” (Matt Levine)
“Anyone who trades a lot of stock benefits from having information about order flow, and a wholesaler who sees a lot of retail orders will have some informational advantages in its public trading.”
Tweets of the Week
Until next week,
The Bear Cave