Up 21% after hours yesterday and finishing today almost 24% from yesterday’s close, it certainly seems that Green Mountain Coffee Rosters isn’t the dark and gloomy picture that David Einhorn painted in his 110 slide presentation released on October 17th of last year (presentation here). To his credit, he makes some strong points as to GMCRs difficulties with free cash flow. However, with several important patents on the K-cup design expiring this year, the company is defensively spending money to acquire competitors and protect the market share. This is in conjunction with large scale research and design efforts to roll out new and improved K-cup designs with fresh patents. Einhorn’s assessments of the patent issue are as follows. GMCR can:
- Overpay to buy their licenses back via acquisitions
- Partner with other coffee brands
- Attempt to patent minor improvements to the K-cup
- Introduce a new brewer that uses a different patented portion pack
Seems a bit oversimplified. Not to mention Einhorn all but suggesting wrongdoing by management as the source of free cash flow issues. Judgements aside, Greenlight Capital spoke and the markets listened. And Einhorn took yet another short sell to the bank.
The thing that disturbed me the most in his powerpoint presentation about GMCR was the allegation that the inventory buildup in the warehouses was all part of some devious stock manipulation scheme. I personally think someone should be sued silly or go to jail depending on the outcome of those allegations. Investors in GMCR lost millions if not billions that day. Some people were really damaged.
There is something wrong with the system when a known money manager can amass a large position and then make a presentation touting that position. I feel the same way when Icahn files a stake, pumps up the price saying he wants on the Board or the Company should be sold, then does nothing about it and liquidates the position. Just doesn’t pass the ethical smell test. I am not accusing these guys of wrongdoing, but the rules around disclosure have to change