The Five Dumbest Things on Wall Street This Week: April 4
5. Mason's Maturity
No. No. No. Groupon(:GRPN), you've got it backwards! It's the coffee sipper that needs to stay and the beer swiller that needs to go.
The Internet deals site said Monday that Starbucks(:SBUX) Chief Executive Howard Schultz and venture capitalist Kevin Efrusy will leave its board of directors, and be replaced by Robert Bass, a Deloitte LLP vice chairman, and Daniel Henry, chief financial officer for American Express. Both new members will serve on the board's audit committee, ostensibly to shore up the company's accounting practices.
Shares of Groupon sank more than 10% to $10.71 following the news of the board reshuffling, as investors bemoaned the loss of Schultz, even as Wall Street analysts applauded the addition of increased "adult supervision" in the wake of last month's fourth-quarter earnings restatement. Groupon's stock has lost more than half its value since last November when its high-profile IPO priced at $20 per share and popped as high as $26 on its first day of trading.
Let's stop there for a second so we can be honest about the real problem that presumably led Schultz to bolt Groupon's board, because in our admittedly Dumb view it's much more than a lack of parental supervision over its number crunchers. (Heck, accountants join boards in order to get out of those particular weeds, so why should we expect Groupon's new board members to change things for the better?)
No, what's plaguing Groupon has to do with its daddy issues. And by daddy, we mean the company's founder and current CEO Andrew Mason.
It was only last summer, if you remember, that Mason's big mouth caused a stir at the Securities and Exchange Commission and endangered the company's IPO. The expectation was, however, that Mason would grow into his executive role as many other young Internet executives have done before him.
Alas, Mason has not yet matured. According to a recent Wall Street Journal article, the 31-year-old CEO was caught addressing his troops under the influence of alcohol. At one juncture in the town-hall style meeting, Mason was forced to stop and apologize, saying, "Sorry, too much beer."
If that didn't get the Starbucks founder to wake up and smell the coffee about associating with an adolescent like Mason, then we don't know what would.
4. Houston's Problem
Houston American Energy(:HUSA), we here at the Dumbest Lab have a problem. You keep digging holes for your shareholders instead of your oil wells.
Shares of the small-cap energy producer sank 13% on Thursday to $1.93 after it announced it was selling stock and warrants in order to raise $13.1 million. The offering is only the latest gut shot for Houston American shareholders, who have seen their stock fall from over $12 at the start of the year to its current single-digit level.
The stock's first leg down began on March 1 when the company announced delays in a Colombian well, and claimed that further analysis of the well's potential would be forthcoming. Not wanting to stick around for the results, Houston American shareholders unloaded the stock, dropping it from $10.84 per share to $7.00.
The next major slide started soon after. On March 16, CEO John Terwilliger tried to rally shareholders by telling them that the bankruptcy rumors on the message boards "are wholly unfounded" and that the company has "a valuable portfolio of prospects."
Come on Terwilliger, that's just terrible! What kind of CEO responds to message board chatter? Actually, forget the question because we already know the answer: A dumb one.
Then on April 19, all of this insanity came to a head when Houston American announced it was terminating efforts to test its questionable Colombian well, possibly because of formation damage while drilling. (So much for those "valuable" prospects, huh John?) Furthermore, the company admitted it received three subpoenas from the SEC for testimony from the CEO, CFO and for delivery of certain documents.
That knocked the shares down from $3.50 to the $2.25 range and unleashed the class-action lawyers, whose suits against the company have been piling up ever since.
And then finally this week, to add one more insult to financial injury, Houston American sinks its own stock again by selling additional shares which and further dilute the holdings of its already suffering shareholders.
So after all this foolishness, will Houston American shares ever get lift-off?
To paraphrase a famous piano-playing Rocket Man: We think it's going to be a long, long time.
3. Einhorn's Interrogation
Somebody get hedge fund honcho David Einhorn a trench coat and a glass eye, because he really is turning into Wall Street's version of Lieutenant Columbo.
The founder of Greenlight Capital, whose decision to short Green Mountain Coffee(:GMCR) is looking awfully prescient right now, personally sent shares of Herbalife(:HLF) spiraling down 21% Tuesday, after he publicly questioned how the weight loss company quantifies its distributors and consumers during its post-earnings conference call.
Late Monday, Herbalife said its first-quarter profit jumped 23%, beating Wall Street expectations, yet it projected a second-quarter profit below the current average analysts' estimate.
Prior to Einhorn piping up on the call, the company's stock was perched solidly above $67 a share, up 29% since the start of the year. After Einhorn started interrogating Herbalife's brass, however, the bottom fell out.
We're not kidding. It was like a Columbo episode after Peter Falk said "Just one more thing." The perp, or in this case, the stock, just cracked.
And to be honest, Herbalife CFO John Desimone's answers may have been entirely adequate. The company claimed Einhorn's queries were "elementary" and "usually asked by investors new to our industry" in a statement after the call. Unfortunately, that was not enough to overcome the investor fear associated with Einhorn sniffing around the company and the stock tumbled.
Look, we are not experts on Herbalife's business, and we don't claim to be. We also don't know Einhorn's motives for his latest gumshoe routine. He could have been short the stock or he could have been searching for a new weight loss plan ahead of swimsuit season. We simply don't know.
That said, for all the dumbness that occurs daily on Wall Street, and all the analysts too lazy to dig for clues, it's nice to see that the market still respects a little detective work.
2. Rupert Gets Rocked
We here at the Dumbest Lab always wondered what a British version of our column would sound like. Considering their legendary politeness, we imagined that our friends across the pond would have trouble throwing casual barbs and the occasional bomb at anybody, let alone captains of industry, as we do on a regular basis.
Luckily, we were granted our wish this week and, as it turns out, we were way off. Turns out the Brits have no trouble launching an insult grenade or two, as evidenced by Parliament's ruling Tuesday against News Corp.(:NWS) CEO Rupert Murdoch in the wake of his company's hacking scandal. Furthermore, they do it using the Queen's English, which, you gotta admit, makes it so much cooler.
"Rupert Murdoch is not a fit person to exercise the stewardship of a major international company," concluded the anything-but-courteous report from Parliament's Culture, Media and Sport committee. (Yeah, we know that's not as badass sounding as, say, our Bureau of Alcohol, Tobacco, Firearms and Explosives. But they gave us James Bond so we'll cut them some slack.)
And it didn't stop there. The legislators pounced on the journalistic malpractice exhibited at the now-defunct News of The World tabloid, by blasting Murdoch and his son James for their propensity to cover up indiscretions "rather than seek out wrongdoing."
Rupert Murdoch, of course, has repeatedly maintained that he was unaware of his employees improprieties and would have stopped them had he known of their illegal snooping. Nevertheless, Rupert's opponents in Parliament stomped on his excuse saying "he turned a blind eye and exhibited willful blindness to what was going on in his companies."
The result of all this Murdoch-bashing was a ruling by the 11-member committee that could jeopardize the family's control over British Sky Broadcasting, in which his company has a 39% stake. Ofcom, the broadcast regulator, said it needs to be "satisfied that any person holding a broadcasting license is, and remains, fit and proper to do so" and is "continuing to assess the evidence."
Jolly good show chaps! And if you don't mind, keep us apprised of your findings because we have a sneaking suspicion there's more comedy left in this Murdoch family tragedy. And your not-so-gentlemanly gibes are like Shakespeare to our ears.
1. Aubrey's Apology
Shares of Chesapeake Energy(:CHK) may keep sinking, but as for the company's CEO Aubrey McLendon, well, he continues to top himself.
The stock fell almost 15% on Wednesday after the company reported first-quarter results that failed to meet analyst expectations. Chesapeake's adjusted earnings were 18 cents per share, a dime less than Wall Street's average estimate, as a result of a glut of natural gas in the market.
Nevertheless, while the company failed to clear the Street's bar, good old Aubrey once again exceeded our Dumbest expectations by putting on yet another stellar -- and stupid -- performance.
McClendon, who was stripped of his chairmanship by the board Wednesday, apologized "for all the distractions" caused by media reports about his wheeling and dealing. Last week it was discovered that McClendon had personally borrowed over a billion dollars to cover his investments in the company's wells, with some of those loans coming from a group that was also planning to buy Chesapeake assets.
That was pretty bad considering Aubrey's history of sketchy financial transactions. However, the most recent Aubrey allegation may be even worse. Reuters reported this week that he was involved in a private hedge fund and was trading oil and natural gas contracts for four years while simultaneously running Chesapeake.
Lord Almighty, where does that guy get the energy? We thought he merely collected antique maps as a hobby, but it turns out Aubrey was really spending his downtime acting out his George Soros fantasy.
Aubrey attempted to shoot down all the reports, of course, telling analysts on the conference call, "Your mother told you not to believe everything you read or hear for good reason, and that's certainly been the case for the past two weeks."
True enough Aubrey. But she also told us that where there is smoke, there is fire. It looks like the SEC is following that logic as well as the company confirmed late Thursday regulators have launched an informal inquiry into both Chesapeake and McClendon. Stay tuned.
--Written by Gregg Greenberg in New York.