CEO Of A Chinese TV Ad Company Launches A Counter-Attack On U.S. Short-Sellers--And It Almost Worked!

China BusA bus in China

The CEO of CCME posted an overly defensive, weird 7-page response to the people “short-selling” his company on the company’s website this morning.He has an problem with Citron Research, which released a January 2010 public report on the at least 7 reasons to short CCME, and Muddy Waters Research, which wrote a report (read it on Zerohedge) that calls CCME a “pump and dump” last week.

In his words, a couple of research companies “attacked” CCME, a company that operates the largest television advertising network on inter-city and airport express buses in China, says the CEO, Zheng Cheng.

Among the reasons Cheng gives that Citron and Muddy Waters are wrong is the platitude: “the proof of the pudding is in the eating.”

Compare his response to the Netflix CEO’s December 2010 response to Whitney Tilson’s public announcement that he’s shorting Netflix.

Of course the comparison is flawed because Netflix is a totally different company ($11.6 billion versus $550 million market cap). Netflix is a U.S. large cap; CCME is a Chinese small cap, and each responds stereotypically like it.

But at a very basic level, comparing them is interesting because it’s a good and experienced response to short sellers versus a bad one. 

Ultimately, both CEO’s arguments say the same thing: the short sellers are wrong. But the way they say it is totally different, and shows why CCME needs a press rep, even if the current stock price says otherwise (it was up a lot today, after the CEO released his letter). The result is that Netflix’s CEO gets his point across; CCME’s fails to. 

But somehow, CCME’s stock was up this morning – so it may have worked. (It’s dropping again now, so the verdict is still out.) To figure out why, click here to download the letter CCME’s Cheng sent to shareholders.

Cheng says dissidents are self-interested liars

Any paranoid madman would agree that everyone is out to get Cheng

Cheng writes:

The manner in which the short sellers seem to have timed and coordinated their efforts plays into their ultimate strategy... By using the anonymity of the internet and publicizing as many unfounded allegations as they can craft... Their ultimate plan is not a complicated one.

Click here to download the letter CCME's Cheng sent to shareholders.

Simply put, Cheng says the dissidents are WRONG WRONG WRONG

Cheng writes (bolding is his):


Click here to download the letter CCME's Cheng sent to shareholders.

Meanwhile, Hastings calm and reasonably considers Tilson's opposing opinion

Hastings writes (bolding is ours):

Odds are he is wrong on all of them, in my view. Let's take them one at a time.

Cheng says he suspects there's a conspiracy theory

Hastings is intrigued by an opposing view

His polite indifference comes off as respect in Hastings' response.

He wants to listen to people who disagree with him so he can prove them wrong.

And he even says, 'For the record, I think short sellers are a positive force in capitalism.'

His style says, 'I'm aware of the dissidents. I'm glad to have another eye look things over, and I've taken their arguments seriously.'

Cheng is curious - about how the researchers got it so wrong

Cheng writes:

We have tried to figure out how and why Muddy Waters could have gotten it so wrong, but of course we do not know what they did.

Click here to download the letter CCME's Cheng sent to shareholders.

Hastings admits Tilson has a point

Hastings admits that Tilson has a point about one thing:

Moving to more interesting angles, Whitney documents our recent decreased FCF conversion due to us paying for content earlier than we had in the past.

With this angle, Whitney does draw a little blood. Our new CFO David Wells and our content team are all over our need to get more consistent about pay-by-quarter for content going forward rather than pay-by-year, even if it means we'll pay a little more. We will be working to improve the FCF conversion trend in 2011.

Netflix CEO Reed Hastings is cordial

Hastings signs his letter like this:

Whitney: Short or long, I look forward to dinner and drinks together in the New Year.

Respectfully, your ally and admirer,


Hastings shows his shareholders that if Tilson ever finds another issue with Netflix, he'll listen.

CCME CEO is heated and huffy until the very end

CCME President Zheng Cheng signs his letter like this:

Zheng Cheng

Chairman, CEO and President

February 7, 2011

It's cold and demanding. This is the end of discussion.

Click here to download the letter CCME's Cheng sent to shareholders.

In the spirit of Hastings, let's check out what else Whitney Tilson is shorting

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