Saturday, 15 March 2014

Olam: possible insider trading?

I have written before about Singapore listed Olam, especially about the attacks from Muddy Waters.

Things took an interesting turn when Temasek launched an offer for all of the shares of Olam, at a price of $2.23 per share, as reported by TodayOnline:

The Republic’s state investor Temasek Holdings has offered to buy all shares in Olam owned by minority shareholders in a cash deal that values the commodity trading firm at US$4.3 billion (S$5.45 billion).

The deal will be done through a Temasek unit, Breedens Investments. Breedens, along with Olam’s family share holders, members of its executive committee, and Arandda Investments, another Temasek unit, already hold around 52.5 per cent of Olam shares.

“Breedens wishes to increase its shareholding to support Olam’s strategy and growth plans for the long term,” it said in a statement.

The offer price of S$2.23 per share represents an 11.8 per cent premium over Olam’s last traded price.

Breedens is not planning at this point to take the company private, intending to Olam remain listed in Singapore unless it becomes in breach of the exchange’s requirement that at least 10 per cent of shares be freely floated.

Breedens is also offering to buy Olam’s outstanding convertible bonds and warrants.

However, one day later TodayOnline reported the following:

Temasek Holdings’ buyout offer yesterday came after Olam’s share price had accelerated dramatically in recent weeks against the backdrop of a flat market, leading some investors to cry foul and call on regulators to investigate possible insider trading in violation of securities laws.

Shareholder activist Mano Sabnani said in his Facebook posting: “What is upsetting is that there seems to have been a big leak of information on this takeover bid.

“The stock has been steadily rising on increasing trading volume in the past three to four weeks.”

Over the last four weeks, Olam shares have risen 41.1 per cent, compared with the 1.1 per cent gain in the benchmark Straits Times Index during the same period.

“In such a takeover, there will be many people involved in planning it and the chances of a leak are great. An early suspension in trading of the stock would have helped to achieve a level playing field,” said Mr Sabnani.

The six month graph of Olam's share price:

From BusinessInsider comes: "One Of Carson Block’s Big Shorts Is Up Big Today":

It looks like short-seller Carson Block’s just got burned on his short on Singaporean agricultural commodities trading firm Olam International.

Bloomberg News reports that Singapore’s state-owned Temasek Holdings Pte’s unit has offered to buy Olam International Ltd. for $4.2 billion. Temasek was already the largest shareholder.

The stock is on a tear. It was up more than 11.7% following the news.

Block, who runs Muddy Waters Research, revealed that he was shorting Olam back in November 2012. At the Ira Sohn Conference in London, Block questioned the Olam’s accounting practices. He believes the trading firm is booking profits from transactions before the deals are done. He also said he thinks the company will fail.

Shares of stock have climbed more than 14% since then.

Block declined to comment on Olam, Bloomberg reports.

Andrew Barber, chief strategist at Asymmetric Risk Advisors, has been following Olam for a while. Barber, who does not have a position in the stock, explained that these things can happen.

“One of the big problems with shorting a stock is that it can turn into an arm wrestling match with large holders. If they have more capital than you they can rip your face off even if you are correct in your investment thesis.”

Block is well-known for targeting Chinese companies he believes are frauds. He’s best known for his Sino-Forest takedown. Block’s Muddy Waters issued a report that claiming the company overstated its timberland holdings. This caused hedge fund billionaire John Paulson  to lose millions and eventually sell out of the stock. The company ultimately ended up filing for bankruptcy.

To comment on this, I am not sure if Block currently still is short Olam's stock, he might have bought back the shorted shares in the past.

1 comment:

  1. When the company applied creative accounting using revenue recognition,how companies increase their earnings?