Today in Financial News, notorious short-seller Daniel Yu is betting against agency holding company MDC Partners.
This morning, Yu published a blog post via his organization Gotham City Research. He seems to think the company that owns CP+B, 72andSunny and other shops has yet to resolve the practices that led former CEO Miles Nadal to step down last year amid an SEC investigation of his finances. Nadal later agreed to repay $21 million to the company he founded beyond the $8.6 million he had already paid at that point.
Yu’s 40-page report is extensive, but he sums it up with a few points and compares MDC to the much-maligned Valeant Pharmaceuticals in his headline, arguing that the holding company currently has “understated debts.”
Some of his accusations are quite serious, most prominently this line: “At least 42%-53% of reported profits are suspect.” He told CNBC today that “We find MDCA’s accounting highly disturbing.”
Yu also references a story we posted last summer, writing, “Dubious related party transactions continue, despite Miles Nadal’s departure, e.g. Lori Senecal’s husband hired last year & compensated $1 million for 5 months’ work.”
On the agency front he notes JC Penney’s decision to move its account from Doner to mcgarrybowen and intellectual property suits filed against 72andSunny and CP+B, though we don’t see how the latter would be related to the financial operations of the parent company.
Yu even goes so far as to predict that “The on-going SEC investigation will lead to new revelations of wrong-doing.”
After his post went live this morning, MDC’s stock dropped. It has gradually recovered throughout the afternoon but at this very moment remains more than $3 below the point at which it began the day.
Amid press coverage of Yu’s assertions, MDC released a statement:
“MDC Partners is in a pre-earnings quiet period and will report its results and host a conference call with investors after the market close on Tuesday, May 3rd. MDC management is confident in its financial reporting and accounting practices, and intends to defend itself against the false and misleading accusations of this short seller report, which is solely focused on destroying the value we are creating for our shareholders for their own personal gain.”
Steve Symington of the Motley Fool blog wrote in a summary:
“As it stands, it’s certainly possible that Gotham City Research is capitalizing on investor uncertainty in the wake of the SEC investigation. But it’s also unsurprising to see our skittish market take a step back today given the gravity of the allegations.”
From the Yu report: “We have come to believe that MDC Partners is, indeed, an exceptional company – for all the wrong reasons.”
Of course Yu has an obvious interest in pushing down the price of MDC Partners stock. But his claims should at the very least heighten interest in its Q1 earnings call, which is scheduled for next Tuesday morning.