David Versus Goliath at Green Mountain (GMCR)

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Short sellers are an interesting lot, particularly when they go public and are vocal against a company.  In many cases they can rack some serious damage to a share price.  News is out today as the Wall Street Journal has run headlines noting new ground being covered against Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) by David Einhorn and Greenlight Capital.

Einhorn has defended his short sale position against Green Mountain and noted that it will be interesting to see how Green Mountain will respond to his letter since the company has not responded to any of his criticisms.  The company may be hiding behind a pre-earnings quiet period, but Einhorn knows that companies are not required to respond to short sellers in the same manner in which they are an activist shareholder who has taken a large stake in the company.

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The reality is that Green Mountain could have addressed Einhorn and his complaints at any time.  They are not exactly obligated to do so and it seems a bit self-serving for a short seller to come out saying that it is surprising that a company would not say anything.

Our accounting observations were a flag for us as well over the last 12 to 24 months, but the stock has risen 100% and then 200% since first addressed.  It is very possible that Einhorn and Greenlight Capital are right in the criticism, but it is also very possible that the information is old and no longer relevant.

Activist investors can be a significant source of added turmoil in running the day-to-day operations of a company.  Imagine what a vocal short seller can do.  The market is meant to protect investors, but short sellers are not exactly investors.  They are speculators and they are usually speculators wanting to destroy value even if it done in the name of “finding a true market price where companies have inflated their true value.”

Einhorn’s short sale presentation already took shares from over $90 to under $70 but now the shares are up over 1% today and are back above $71.00.  Investors and short sellers alike will get to pick apart the earnings on Wednesday.  Until then, Einhorn is going to be a one-man talk show.  We do expect that the company will address at least some of the Einhorn “issues” which have been brought up when they conduct their conference call.

Don’t be surprised if the Q&A session is ‘invite only’ or at least if it excludes David Einhorn.  We won’t even be surprised if the company does not offer much of a Q&A session during its scheduled webcast of results at 5:00 PM on Wednesday.

JON C. OGG

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