Olam International Ltd. deserves praise for addressing some of the shortcomings in its business, according to Carson Block, who two years ago said the shares were worthless.
The Singapore-based commodity trader saw its stock rise 12 percent today after a unit of the nation’s state-owned investment company offered to buy it in a deal that values Olam at S$5.3 billion ($4.2 billion). In November 2012, short-seller Block compared the company to failed American energy merchant Enron Corp., saying it would probably collapse.
“Olam gets credit for taking steps to mitigate some of the issues we identified,” Block wrote in an e-mail to Bloomberg News today. “The Singapore sovereign wealth fund’s timing is interesting given that Olam has $1.2 billion of debt maturing this year and is still burning cash, and that the stock has inexplicably outperformed in the past month.”
Block, who founded Muddy Waters LLC, announced he was betting against Olam at an investor conference in London in November 2012. Since then, the stock is up 14 percent through March 12, aided by a gain of 35 percent since the start of February. During that stretch, Olam’s Singapore-traded equities have climbed on 18 of 26 days before being halted earlier today before news of the takeover offer was disclosed.
Block declined to say whether he is still short the stock.
Buying Olam will give Breedens Investments Pte, a unit of Temasek, control of one of the world’s top three coffee and rice traders. Olam has been cutting spending and selling assets to address investor concern about cash flow. The stock, which closed as low as S$1.395 after Block’s attack, reached a near 17-month high of S$1.995 in Singapore on March 12 and climbed to S$2.23 today in its biggest gain since 2009 as it resumed trading after the stock had been halted pending news.
Muddy Waters, which rose to prominence starting in 2011 with bearish research on Chinese companies trading in the U.S., issued a 133-page report on November 2012 saying Olam was “likely to fail.”
Block’s firm reiterated the view in a posting on its website on September 2013. Olam had invested in projects that would fail to generate large enough returns to pay back debt, it said. “In a world where capital is allocated to maximize economic efficiency, Olam’s shares have no value,” Muddy Waters wrote.
All along, the company has said Block was wrong.
“This whole bogey of trying to say that we have some kind of liquidity crisis cannot be corroborated,” Chief Executive Officer Sunny Verghese said Nov. 28, 2012, at a press briefing in Singapore. “I just can’t understand” how Muddy Waters could suggest the company may fail, he said.