Samsonite tumbles after short seller questions accounting

Bloomberg

Samsonite International SA, the world’s largest branded-luggage maker, tumbled the most since 2012 after short-seller Blue Orca Capital questioned the company’s accounting and corporate governance.
Samsonite concealed slowing growth with debt-funded acquisitions and inflated profit margins with dubious accounting linked to its takeovers, Blue Orca, founded by former Glaucus Research Group research director Soren Aandahl, alleged in a report.
A spokeswoman for Samsonite, which is based in Mansfield, Massachusetts, and traces its roots back to the early 1900s, said she couldn’t immediately comment on the report.
The company’s Hong Kong-listed shares slumped 9.8 percent to HK$30.70 before trading was halted, wiping out the equivalent of $607 million in market value. Euro-denominated bonds issued by a Samsonite unit also tumbled.
The short-seller’s allegations centre on a Samsonite growth strategy that has mostly been applauded by investors and sell-side analysts in recent years. The luggage maker’s acquisitions, which include rival Tumi Holdings Inc. and online retailer eBags Inc., helped boost Samsonite’s net sales to a record in 2017 and lifted the stock to a 16 percent gain in the 12 months before the recent slump.
The average share-price target compiled by Bloomberg implied a 26 percent advance over the next year.
Blue Orca’s price target on the stock suggests a 43 percent drop from current levels, a call that’s much more pessimistic than even the most bearish sell-side estimate.
Among other allegations Blue Orca cited for its outlook: questionable related-party transactions between Samsonite and Indian entities controlled by Chief Executive Officer Ramesh Tainwala and his family, and a revolving door of auditors at the luggage maker’s South Asia unit.
Catherine Lim, a Bloomberg Intelligence analyst in Singapore, said Samsonite’s revenue from India and the Association of Southeast Asian Nations accounted for less than 10 percent of the company’s global sales and profit last year.
She also noted that corporate disclosures are generally less transparent in Asian emerging markets and that related-party transactions aren’t uncommon.
“Samsonite has to date delivered on its articulated strategy since its public listing in 2011 of fuelling growth via acquisitions in my view,” Lim said.
The Samsonite report ends a lengthy period of quiet from activist short sellers in Hong Kong, where a broad market rally has caused many bearish wagers
to backfire.