It isn’t easy being a short-seller in a bull market, and indeed, they’re becoming an increasingly rare commodity. Recently, we covered a damning report released by one of them, Spruce Point Management, a firm whose primary goal is to find companies it finds particularly pungent for the purposes of short-selling them and waiting for the debacle to unfold. Its target at the time was NCR Corporation (NYSE:NCR). In the 98-page report, Spruce Point suggested NCR should be considered a “Strong Sell” with 45%-70% downside risk. The report focused on the problems related to the company’s primary operations and management. Most importantly, it covered the challenges coming from the financial payments sector, where retailers are increasingly turning down point-of-sale technology and switching instead to mobile payments solutions like Square, Apple Pay, and Google Wallet in attempts to reduce costs. Adding to that, Spruce Point unequivocally hinted at potential accounting overstatements by NCR Corporation (NYSE:NCR)’s top executives, several of whom were formerly engaged with notorious company Symbol, known for its own accounting frauds back in the early 2000’s.
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It certainly seemed like Spruce Point had a strong argument, and shares of NCR Corporation (NYSE:NCR) would drop by about 8% in the week following the release of the report, which included the release of underwhelming quarterly results for the company that appeared to fall neatly into Spruce Point’s thesis. Shares of the Georgia-based producer of ATMs, service and software for ATMs, point-of-sale devices and software, and other products and services began to rebound in May however and had made up their late April losses by the end of the month. However Spruce Point suffered a setback on June 12, when it was reported that a joint bid by two of the biggest private equity firms in the world, Blackstone Group LP and Carlyle Group LP, would seek to acquire all outstanding shares of NCR Corporation (NYSE:NCR). Those shares shot up by nearly 15% as a result and left short-sellers like Spruce Point in a precarious position, as a sale of the company would appear on the surface to be a very real possibility at this point, which would end any chance of their short thesis playing out; a somewhat cruel fate perhaps, to essentially not even have a fair chance at seeing whether their exhaustively presented thesis would’ve proven correct or not and whether NCR would’ve crumbled.
That said, the deal, facilitated by JPMorgan Chase & Co, is still in the very early stages and the potential buyers are having a hard time trying to get NCR to accept their proposed $10 billion offer. There are now rumors that other private equity firms could enter the fray and make their own, enhanced offers for the company, including Apollo Global Management. Despite the aforementioned issues at the company, there is clearly an underlying business and operations that can provide value to buyers. The most intriguing business line of NCR Corporation (NYSE:NCR) is its financial services, which at the moment experiences high growth, fat margins, and stable cash flows. Some analysts believe that the company could be attractive to potential buyers solely due to this particular division. Should the $10 billion leveraged buyout eventually be accepted, it would become notable for two reasons: it could be the biggest deal since 2008, and it is very rare to see such private equity giants teaming up. So far, the official representatives from both sides have not commented on the deal and information is mostly coming from anonymous people familiar with the matter.
As of June 12, NCR Corporation (NYSE:NCR) was more than 30% owned by hedge funds, the most prominent of which from our database were Richard McGuire’s Marcato Capital Management and Barry Rosenstein’s JANA Partners, which owned 10.85 million and 14.81 million shares respectively, as of March 31.
Disclosure: None
