Harnessing Social Media for Crisis Management: Lessons following recent events involving short seller allegations
McCarthy Tétrault LLP, 22 December 2015
In October, 2015, short-sellers attacked three Canadian public companies: Valeant Pharmaceuticals International, Inc., DH Corporation and Nobilis Health Corp. All three companies refuted the short sellers’ allegations in traditional media. We suggest below that these companies could have also used social media to get their side of the story out. In our view, there was a potential opportunity to further influence market sentiment about allegations that had already negatively impacted secondary market trading.
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Fighting back against DH Corp short sellers
Jonathan Ratner, 28 October 2015
Financial services firm DH Corp. is the latest Canadian company to come under attack from short sellers. The stock fell sharply on Monday after hedge fund Lawton Park Capital Management accused DH (formerly Davis + Henderson Corp.) of masking weakening performance with “desperate M&A and accounting tricks.”
DH has recovered some of those losses since, but Graham Ryding at TD Securities still sees a very attractive entry point given its current valuation. “The market reaction to short-seller concerns is misplaced,” the analyst told clients, raising his rating on DH to action list buy from buy.
Ryding also maintained a $47 price target on the stock, which represents upside of about 35 per cent, noting that his conviction in the company’s growth outlook and fundamentals is intact. DH management released its third-quarter results early in order to respond to issues raised by Lawton Park.
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DH stock hit hard by offensive from U.S. short seller
TIM SHUFELT, 27 October 2015
For the second time in a week, a U.S. short-seller has launched an offensive against a large Canadian company, triggering a surge in pessimism and a deep stock sell-off.
On Monday, shares of DH Corp., the financial services firm formerly named Davis + Henderson, swiftly fell in response to a bearish call by a little-known U.S. hedge fund. Over two trading days, the stock fell by as much as 25 per cent as the company fought to dispel the allegations.
A similar frenzy has gripped Valeant Pharmaceuticals International Inc.’s stock over the past week, after a report called the Canadian-listed company a potential “pharmaceutical Enron.” The two episodes could set precedents for U.S. short-sellers willing to stalk ever bigger game, said Jason Donville, chief executive of Toronto-based Donville Kent Asset Management, which owns Valeant shares.
“To trigger a panic on a stock is now relatively easy. If they can just get the ball rolling, it can go a long way down,” he said. “We’ve seen the playbook.”
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DH Corp. defends accounting practices, calls hedge fund report ‘misleading’
Alexandra Posadzki, 27 October 2015
TORONTO – Financial technology company DH Corp. is defending itself against what it calls a “false and misleading” report from a hedge fund that casts doubts on its growth prospects and past performance. The report by Lawton Park Capital Management alleges the Toronto-based company (TSX:DH) is making “desperate” acquisitions and playing “accounting games” in order to obscure its dwindling performance. The report takes issue with DH’s approach to accounting for its revenue and alleges that “numerous” insiders of the company have been selling their shares, which could indicate trouble brewing that the public isn’t aware of.
DH released its quarterly earnings report earlier than planned and bumped up its conference call to discuss its results, originally slated for Wednesday, to Tuesday morning in order to address the allegations. The company, formerly known as Davis + Henderson in the days when it was primarily known for printing and supplying paper cheques for Canada’s big banks, says investors should rely on its public filings and not the analyst report. DH’s chief financial officer Karen Weaver said the company follows “disciplined accounting practices” that are in accordance with the International Financial Reporting Standards.
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