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Short shrift

Short shrift

Hindenburg Research, the New York short-seller, is on the hunt again after it targeted India’s Adani Group. Its target this time is an activist too.

Long stories short

• British Airways owner IAG posted a surprise quarterly profit due to rebounding tourism demand and falling fuel prices.

• The European Central Bank raised its rate by 25 basis points to 3.25.

• The London Stock Exchange changed its listing rules (more below).

Short shrift

Carl Icahn began this week with a net worth of $24 billion and an unchallenged place in the hall of fame of great American investors. He ends it $11 billion poorer, struggling to contain the damage from a devastating attack on his business model, ethics and good name.

So what? Icahn’s is the third big scalp claimed so far in what’s turning out to be a banner year for Hindenburg Research, the New York short-seller and David in a field of lumbering Goliaths.

Hindenburg is run by Nathan Anderson, whose success has simple but important lessons for CEOs, CFOs, board directors and investors in tough times. Among them:

  • Don’t be a herd investor if it means you’ll be drawn towards what Anderson calls “pockets of mass irrationality” – because firms like his will find you out.
  • Don’t try to hide discrepancies between optimistic forecasts and reality, especially if you’re in a position of corporate responsibility.
  • If caught inflating the value of your assets, fess up. Markets will take a dim view of anything that looks like bluster, and compound the damage.

There’s another lesson to be drawn from the Icahn story in particular: don’t take out margin loans against your own holdings in a time of macroeconomic uncertainty and high or rising rates. If you’re overleveraged, so is your company.

Bubbles. Hindenburg is thriving – even if Icahn isn’t – in a business landscape bloated and distorted by 14 years of monetary indulgence. “Central banks have unleashed [a] fire hose of cash and propped up markets and inflated markets across the board,” Anderson told Tortoise last year. That helped create the “massive financial bubbles” that short-sellers exist to pop.

Pyramids. Many are little more than Ponzi schemes, Anderson says, and a Hindenburg report released this week says Icahn Enterprises (IEP) was no exception. It claims IEP 

  • has lost 54 per cent of its value since 2014 but still raised its dividend three times to nearly 16 per cent, by far the  largest of any large-cap US company;
  • overvalued one of its key assets, a meat-packing company, by 204 per cent; and
  • “has been using money taken in from new investors to pay out dividends to old investors” – the hallmark of a Ponzi scheme.

Hunter. How does Anderson choose his targets? “We scour the globe for entity records and financial filings to see whether the documentation matches up,” he said. “We look for material lies or misrepresentations by the people in charge. We want to see if their claims hold up to reality.” Translation: we read a lot of annual and regulatory reports. We compare and contrast.

Prey. Anderson set up Hindenburg in 2017 after a stint as an ambulance driver in Israel. His first big short was of the Nikola electric truck maker, whose founder was later convicted of securities fraud. Hindenburg later offered $1 million which it hasn’t paid out for information on how Tether, the so-called stablecoin, is pegged to the dollar. This year it has targeted

  • India’s Adani Group, which has lost $125 billion of value despite coordinated moves to shore up its stock price since Hindenburg accused it of accounting fraud in January;
  • the Twitter founder Jack Dorsey, accusing him of exaggerating user numbers at Block Inc., his online payment group; and
  • IEP, which grew out of Icahn’s asset-stripping of TWA in the 1990s and a $1.3 billion profit from a long-held stake in the Herbalife nutrition supplements business – itself often called a pyramid scheme. 

Price. IEP lost 20 per cent of its value when the Hindenburg report came out on Tuesday. Icahn rejected its claims as self-serving for the purposes of turning a profit – and IEP lost another 20 per cent. One analyst said Icahn deserved the second slump for being condescending and glib in his response to the first. Other telltale traits Anderson looks out for in business leaders are aggression, mendacity and “sociopathic tendencies”.

Time for Icahn – and his rivals and admirers – to take a long look in the mirror.

capital economy, business and finance

Pull in emergency

The FCA is overhauling London’s listing rules in an attempt to stem the flow of companies moving to bourses abroad. The hope is that removing the need to present three years of audited accounts will attract the startups of the future. But investors critical of the reforms say the “more permissive” approach towards dual class share structures represents an erosion of hard-won shareholder rights. Is it all a little too late anyway? CRH, the building materials giant, and Arm, the chipmaker, have already chosen to float in the US citing Brexit “idiocy”. Julia Hoggett, head of the London Stock Exchange, has highlighted the transatlantic gap in executive pay as a problem. Closing it could be a headache for UK companies: both Unilever and Pearson faced shareholder revolts over pay this month. An easier way to stop the exodus: require pension schemes to be heavily invested in UK stocks.



Online education has become the first sector to get a kicking from investors anxious about the advance of generative AI. Shares in Chegg, which provides online study guides, nearly halved on Tuesday after it admitted student interest in ChatGPT was hurting sales. The contagion spread to Pearson and Duolingo, falling 15 and 10 per cent respectively. Edtech companies that made windfalls in the pandemic are suddenly scrambling to build chatbot competitors. Chegg could still ride the wave: CheggMate, its blueprint for an automated tutor, will combine the power of OpenAI’s chatbot with Chegg’s billions of items of educational content and will require a subscription to access. When it comes to training robot-teachers, good data is gold.

The 100-Year life Health, education and government

Upskilling Gen C

Deloitte and PwC, two of the UK’s big four accounting firms, are laying on specialist training for new recruits who find it harder to communicate and work in teams after the disruption of the pandemic. Partners at the firms told the FT recent graduates have less confidence doing basic tasks like making presentations and speaking up in meetings. It’s not surprising given the toll of the pandemic on education but it’s unfortunately still rare for employers to invest adequately in their workforces. UK employer investment in training has fallen 28 per cent since 2005, and lower skilled workers are the least likely to benefit. Staff with a degree are three times more likely to get training at work than someone with no qualifications.

our planet climate and geopolitics

Banga for your bucks

Ajay Banga, former CEO of Mastercard and Biden’s top pick for next head of the World Bank, has secured the nomination. He now has the unenviable task of protecting the lender’s AAA credit rating while expanding its lending capacity to tackle climate change. Banga’s business credentials will aid his mission to crowd in private capital for development projects, and he has struck a decidedly different note on climate than his Trump-appointed predecessor, David Malpass. But the internal challenge is immense: the average time taken for the World Bank to disburse funds is 465 days, according to the ONE Campaign. The Amazon doesn’t have that long.

culture society, identity and belonging

Yeezy come Yeezy go

Shareholders are suing Adidas alleging it failed to warn investors it was aware of Kanye West’s anti-semitism and “extreme behaviour”. The complaint filed this week said former CEO Kasper Rorsted and CFO Harm Ohlmeyer failed to disclose antisemitic comments Ye made in front of Adidas staff including a suggestion he would name an album after Adolf Hitler. Adidas ended its collaboration with the rapper last year and has admitted that it could lose up to £619 million after being left with large amounts of unsold Yeezy stock. If Adidas decides to sell the shoes, it might help with declining sales. The challenge then, according to Holly Huffnagle, US Director for Combating Antisemitism, is to make sure “the antisemitic messaging of the shoes’ creator doesn’t spread”. Could brand activism go any more wrong?

Thanks for reading.

Giles Whittell

Additional reporting by Barney Macintyre.

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