The Universal Travel vs. Short Sellers saga just took an unexpected turn.
Early in September, the Chinese U.S.-listed company Universal Travel Group (UTA) came under assault by some rather serious allegations from Bronte Capital, which appeared to accuse the firm of fraud. Bronte said they were shorting the shares at the time as well.
UTA shares initially dove on the allegations, yet have since recovered part of their initial losses, and Bronte has since come out with successive blog posts highly critical of the company. It seems however that Bronte’s allegations have lost some of their bite, as the stock has stabilised, at least for now:
Any short-sellers right now are obviously betting on these shares falling even further in price, perhaps even completely collapsing.
But… there’s a piece of news today that shows how the shares could also be potentially be at risk of rising:
Today Universal Travel announced that they’ll have a shareholder meeting, in Shenzhen, China, and one issue they’ll be voting on is the creation of a new staggered board system for the company.
To approve an amendment to the Company’s certificate of incorporation to authorise the classification of the board of directors (the “Board”) into three classes with staggered terms;
They want to create a staggered board of directors, which is a classic take-over defence since it makes it far harder for an activist shareholder, or a competing company, to buy shares and then take control of the company. This is because you can’t replace the board in one fell swoop, you need you wait and do it in stages every time a new group of directors are scheduled.
2. To elect seven directors to serve on the Board, in either Class I, Class II or Class III of the Board, subject to the provisions of the by-laws of the Company, with such Class I directors to serve until the 2011 Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified, or until such director’s earlier resignation, removal or death, such Class II directors to serve until the 2012 Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified, or until such director’s earlier resignation, removal or death, and such Class III directors to serve until the 2013 Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified, or until such director’s earlier resignation, removal or death;
So what’s so strange about this is that short-sellers are different from activist investors. You don’t need to protect against a changes in control by short-sellers. Short sellers don’t buy large stakes in your company, change the board, and then drive the value of the shares they own to zero.
Rather, it’s almost as if Universal Travel is worried that its weakened share price has made it vulnerable to a hostile takeover of some sort. If this is truly a threat (we’re just speculating here), then it means the shares could actually rise if it suddenly become apparent that the company was a target either of an activist investor looking to buy into the company, improve operations, and then increase share value (Such as Carl Icahn tries to do), OR another company that tries to buy UTA outright since it sees value.
We don’t have a view on whether UTA shares are cheap or expensive, nor can we ascertain the validity of either UTA or Bronte Capital’s claims.
It’s just that UTA’s desire to create a staggered board suggests that there is some kind of takoever threat.
Now check out Bronte’s allegations against UTA >
Disclaimer: The author does not own shares in UTA. His associates could have exposure to UTA shares at any time and without notice. This is not an investment recommendation and data may be subject to error despite best efforts. The author’s opinion could change at any time.
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