Olam International

[l0nEr]

i fear the worse for Olam is yet to come. Muddy reputation vs. Olam business model. 133 page report is very telling indeed. we have a Co. that has been expending using recycled capital from fund raising. Need to check who the major financiers are and especially the equity side business is now damaged so its now standing on 1 leg - ie the business better generate cash enough to pay the bond holders and bank?

If that model is as what Muddy water points out to be flawed. We could well see a complete bail out from bankers and that's serious damage to commodities business.

We know the rice and sugar is kaput and not sure about nuts? I think Muddy got the right target hit in a very uncertain business environment.

trade 3 rounds of olam and only make a small bit but the rest all lost money. Looking at the sell vol. not sure who would win at the end of the day.

Muddy should perhaps do 1 on Genting also

My 2 cents worth... (just typing it out so that i can think through myself too)

yeah, but if you read the 45 page rebuttal from Olam, they also addressed quite a bit of stuff from Muddy Waters (certainly not all though). Most of what Muddy Waters wrote in their report isnt new, except for all the M&A progress and related accounting. All the non-cash accounting is a debate for the International Accounting Standards Committee (over the IFRS and SFRS), but what i understand is most analysts adjusts for the non-cash items. (According to bloomberg, 7 out of 10 does that, i wonder which are the 3 who didnt).
After reading a particular brokerage report and Olam's rebuttal, i dont particularly feel that Muddy Waters have done their full homework. I'm sure they did a lot of work (to be able to write such a long report), but it seems like didn't get the M&A acquisition cost differences totally correct.

From Muddy Waters: We believe that Olam’s fatal flaw, and one of its best kept secrets, is that its CapEx projects seem to be a fiscal black hole.

However, even the broker (3rd party without insider information) was able to point out that some of the differences came from non-cash acquisitions and that some of the acquisitions were not completed at the point of time (hence no cash capital expenditure). And that point was also printed in Olam's annual report. Yes they dig for 3 months to learn so much about the company, but turns out that one of the key argument is looking like a miscalculation. If Olam really does manage to reconcile the entire capex for Muddy Waters, i really dont see how much i can rely on Muddy Waters.

The various "failed" acquisitions are one point to note. While Olam has released figures (such as how many livestock they have) and internal presentations on the project updates, this is one thing nobody can ever be sure of. Since ultimately you arent there to count the livestock or see the rice being grown (anybody tried google maps or some live satellite view???). Sometimes its like the blind touching the elephant, everybody sees things from a different point of view. E.g. Muddy Waters saw one side of the field is flooded and took a flooded photo; Olam took only one photo with a rice field. And the key point is nobody can even tell whether the field is in Nigeria or just in Malaysia. Business and investments is done by trust, and Muddy Waters is really pointing at integrity. Without the trust, Olam will probably be going to trade like an S-chip.

Both sides are biased, one is long and the other is short. Up to you to listen. Muddy Waters is just creating a lot of impact now by pushing for valuation by liquidation (Making noise that the company is worthless attracts attention and creates more fear). I mean seriously, if you value a living business this way, no matter what you wont get a nice number, especially if the company is trading above book value. Most businesses are worth more as a whole then by parts (this is NOT F&N).
I think there is probably going to be a rebuttal from Muddy Waters. Took them 1 week to come up with follow ups to Focus Media, although they failed to follow up on New Oriental Education & Technology Group. But, it doesn't seem like Sunny is going to take it lying down.


And yes, i think this makes an excellent case study for both Business and accounting (Forensic accounting in particular....). I'm more interested in this from a more academic point of view then investment. Yes, risk is indeed high.