Samsonite is looking like a tempting target for shorts

However you regard the veracity of a short-seller’s allegations against Samsonite International SA, one thing is certain: Targeting a Massachusetts-based firm with a wide shareholder base seems to be a much a safer bet than going after the hordes of opaque Chinese companies in Hong Kong.
The baggage company, whose hard-shell suitcases recall the glory days of flying, has become the first intended prey of Blue Orca Capital, a short-selling research company recently established by Glaucus Research co-founder Soren Aandahl.
Many of the issues underlined in Blue Orca’s 48-page report — from Samsonite’s accounting treatment of acquired assets and inventories, to related-party transactions with Indian entities owned by the family of CEO Ramesh Tainwala, to questions about Tainwala’s resume — will require answers from management. The activist also says the luggage brand is trading at luxury valuations, despite being a heavy discounter. Samsonite’s main response last week was that Blue Orca’s report was one-sided and misleading.
Samsonite is American, not Chinese, and while Asia accounts for a large chunk of revenue, North America is still big. In other words, it doesn’t have the natural Chinese base or analyst support of an H-share with the bulk of its revenue from the mainland. And because it lacks significant operations in Hong Kong and China, the stock isn’t part of the Connect trading pipes that link Hong Kong with the Shenzhen and Shanghai stock exchanges. A mainland edge can be a disadvantage for a short-seller, as Aandahl found with his last Hong Kong target.
The prevalence of dominant shareholders in many Hong Kong listings can also hurt shorts, as some found when they bet against Hui Ka Yan’s real estate giant, China Evergrande Group, last year.
Samsonite, in contrast, has a much more widespread ownership base. Its biggest shareholder, Capital Group Companies Inc., one of the world’s largest investment firms, holds just 12 percent.
As one of a handful of foreign firms listed in Hong Kong, Samsonite doesn’t have the local connections to send enemies packing. It does have another ace to play, though: The luggage maker is based in a much more litigious jurisdiction, and says it reserves the right take legal action. This might be no pushover.

—Bloomberg