Embattled hardwood/laminate flooring retailer Lumber Liquidators’ stock appears to be higher on what appears to be an unfounded rumour that they will be acquired.
Shares of Lumber Liquidators spiked more than 12% hitting an intraday high of $US23.20 per share. Trading volume in the stock also spiked.
The stock was last trading up about 5%.
“We don’t comment on rumours,” a spokesperson for Lumber Liquidators said.
Hedge fund manager Whitney Tilson, who is short Lumber Liquidators, sent the following email explaining that it’s the “dumbest rumour ever.”
I just received this email from my broker: “LL Hearing vague chatter with $USHD rumoured acquirer for $US35-40”
This is the dumbest rumour ever.
Nobody is going to buy Lumber Liquidators, nor will any bank finance an acquisition or management buyout (even in this debt-markets-wide-open environment), because nobody — not me, not the company, not the lawyers suing Lumber Liquidators — has any idea what the liabilities are — but they are potentially large and open-ended. What deep pockets would want to own these liabilities (not to mention the estimated $US2 million per month of legal expenses)?
At some point, probably at least two years down the road, after the regulators have weighed in, there is some clarity around the legal liabilities, and the impact on the company’s sales and margins is known, Lumber Liquidators might be an acquisition candidate — but not before.
The SEC needs to investigate rumours like this — spread, no doubt, by someone looking to sell — because it popped the stock by nearly $US3 or 15%. It’s blatant market manipulation.
Lumber Liquidators has come under pressure in recent months. In March, “60 Minutes” and Anderson Cooper ran a damning report that found the company appeared to be selling laminate flooring from China with levels of formaldehyde that were higher than that permitted under California law. Numerous health concerns surround high levels of formaldehyde.
Shortly after, Lumber Liquidators said in a statement that “60 Minutes” got it wrong and used an improper testing method.
Shares of Lumber Liquidators have also collapsed more than 67% this year.
Here’s a chart of today’s trading activity: