It looks like short-seller Carson Block’s just got burned on his short on Singaporean agricultural commodities trading firm Olam International.
Bloomberg News reports that Singapore’s state-owned Temasek Holdings Pte’s unit has offered to buy Olam International Ltd. for $US4.2 billion. Temasek was already the largest shareholder.
The stock is on a tear. It was up more than 11.7% following the news.
Block, who runs Muddy Waters Research, revealed that he was shorting Olam back in November 2012. At the Ira Sohn Conference in London, Block questioned the Olam’s accounting practices. He believes the trading firm is booking profits from transactions before the deals are done. He also said he thinks the company will fail.
Shares of stock have climbed more than 14% since then.
Block declined to comment on Olam, Bloomberg reports.
Andrew Barber, chief strategist at Asymmetric Risk Advisors, has been following Olam for a while. Barber, who does not have a position in the stock, explained that these things can happen.
“One of the big problems with shorting a stock is that it can turn into an arm wrestling match with large holders. If they have more capital than you they can rip your face off even if you are correct in your investment thesis.”
Block is well-known for targeting Chinese companies he believes are frauds. He’s best known for his Sino-Forest takedown. Block’s Muddy Waters issued a report that claiming the company overstated its timberland holdings. This caused hedge fund billionaire John Paulson to lose millions and eventually sell out of the stock. The company ultimately ended up filing for bankruptcy.
Here’s a chart from when Block’s Olam short was made public:
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