Muddy Waters, one of the world’s best-known short sellers, has taken its first public long position — saying that the holding company of French billionaire Vincent Bolloré has been hugely undervalued due to its “horrifically complex corporate structure”.
“This is the first time in our investment careers that we have come across a situation in which a company’s opacity is a reason to buy the stock,” Muddy Waters said in a research report published on Tuesday.
The hedge fund, founded by US investor Carson Block, is famous for its secretive research and detailed attacks on companies including Sino-Forest, the Chinese timber group, and British technology company Blinkx. Mr Block relocated from Hong Kong to San Francisco after receiving death threats a few years ago.
He told the Financial Times that Bolloré, the Paris-listed holding company, had far fewer shares outstanding than analysts had estimated because of cross-ownership and circular ownership structures.
Bolloré said it did not comment on market research. The company’s investments include African ports, electric cars and stakes in advertising group Havas. Mr Bolloré is also chairman of Vivendi, the French media group.
Muddy Waters’ report did not challenge Bollore’s current market capitalisation of €12.2m, but it estimated that the company owned 57.2 per cent of its own shares through various intermediary entities. That meant the public “effectively owns 42.8 per cent of the company, versus the reported 24.3 per cent”.
The ownership structure “has circles within circles within circles”. This meant that it was “infeasible to use Excel to estimate the percentage of circular ownership”, the report said. Instead Muddy Waters “engaged consultants that created a program to do the calculations necessary”.
Mr Block said he “had never heard” of Vincent Bolloré, whose wealth is estimated at $6.6bn by Forbes, before he came across his holding company. “We were therefore surprised to learn that he has been one of the sharpest-elbowed activist investors in Europe over the past three decades,” its report said.
Mr Block investigated the company after an existing long investor approached Muddy Waters, but has had no contact with its management.
Mr Bolloré, who is a close friend of Nicolas Sarkozy, the former French president, has tended to keep a low profile in French business circles. He has built the family business slowly, which originally made paper for cigarettes and bibles, and diversifying into plastics, and then into transport and logistics, particularly in Africa, as well as cotton and cacao.
More recently, he started investing heavily in electricity storage and is behind Paris’s Autolib electric car rental service. Today, his Bolloré group has almost 55,000 employees and annual revenues of close to €11bn.
Mr Bolloré has his own history of taking active positions, including on Bouygues, the construction group. “He is sometimes viewed as collaborative, sometimes viewed as uncollaborative,” said Claudio Aspesi, an analyst at Bernstein.
Muddy Waters’ report argued that Bollore’s shares are worth 95 per cent more than their previous stock price of €4.3. On Tuesday, shares in the group rose 2.4 per cent to €4.48.
Even if Muddy Waters’ calculations are correct, investors may still be wary of committing funds to Bolloré given its opaque structure.
“A bunch of bad things could happen to the underlying businesses and the stock is still a buy,” said Mr Block. “The big risk is that there’s not enough disclosure.”
Bolloré’s largest shareholders include International Value Advisors and Norway’s Norges Bank Investment Management Bank.