Director | Exposing Creative Accounting, Bucephalus Research Partnership

Robert Medd

Director | Exposing Creative Accounting

Exposing Creative Accounting

Bucephalus Research Partnership

Bucephalus Research Partnership Limited. Exposing Creative Accounting.

At the Bucephalus Research Partnership (BRP) we analyse financial statements using our accountant's practical experience and our own quantitative algorithms for corporate governance, accounting risk and peer performance.

Our thematic research refines our unique algorithms while our single stock research focuses on examples where we discover a significant gap between published accounts and business reality.

​Bucephalus Research Partnership:
- Is an independent fee-based research service
- Does not take proprietary positions, long or short
- Does not solicit business or fees from the corporates we review

Equity Bottom-Up

Cineworld (CINE LN) levered up to buy Cineplex (CGX CN), just as the Coronavirus broke out. A deal that looked ugly prior to collapsing audiences is now likely to collapse the group.We believe Cine has flattered profits, to create the appearance of cashflow when in reality there is little. They have taken advantage of lease accounting changes to obscure leverage and minimise there obligations of which there are many.We think it is most unlikely that CINE will survive the year without raising further capital.

Cineworld (CINE LN) levered up to buy Cineplex (CGX CN), just as the Coronavirus broke out. A deal that looked ugly prior to collapsing audiences is now likely to collapse the group.We believe Cine has flattered profits, to create the appearance of cashflow when in reality there is little. They have taken advantage of lease accounting changes to obscure leverage and minimise there obligations of which there are many.We think it is most unlikely that CINE will survive the year without raising further capital.

Cineworld. Looking like a Horror Show, Sell

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Port and logistics operator <a href="https://www.smartkarma.com/entities/dp-world" target="_blank" data-smartkarma-citation="entities:22734:1" rel="noopener">DP World (DPW DU)</a> saw its parent Port and Free Zone World, a wholly-owned subsidiary of state investment vehicle Dubai World, announce on 18 Feb that it would acquire the 19.55% of DP World's shares listed on the Nasdaq Dubai (the other 80.45% is owned by the SOE).It was presented as a fait accompli. Investors in and shareholders of the minority public portion had shown the audacity to not hold the shares forever, indeed to sell them at times, such that, like other stocks in the world, the price occasionally got to levels where some people complained to management.DP World's Corporate Governance Principles include Principle #5 (see p65 of the <a href="https://www.dpworld.com/-/media/82C51A91422A4AEBB83655E376DD2472.ashx" target="_blank" rel="noopener">2018 AR</a>)<blockquote>Principle 5 The Board must ensure that the rights of shareholders are properly safeguarded and that there is effective dialogue between the Board and the Company’s shareholders.</blockquote>That didn't really happen.Management decided that if marginal sellers were willing to sell in the market, and marginal buyers were not willing to buy it at expensive valuations, it was fitting to conclude that minority investors were not in it for the long-term and deserved to get taken out in a kind of MBO.This is a weird conclusion, and smells more than a little of a contempt for public markets and minorities. The shares traded an average of 398,655 shares a day in 2019, for a total volume during the year of 98.9mm shares. That was 61% of the entire float. DPW management could say that was low for such a big stock, so obviously nobody was interested in the company. Or they could say that it was high (which, on average for a global stock/business with a multi-billion float, it is not), in which case that showed there were no long-term holders.In short, there was an opportunity to buy the company relatively cheaply with cheaply funded debt, and they took it.They announced it. They held an explanatory call. That call didn't go so well. There were some unhappy campers who obviously felt that Principle 5 had not been upheld.But it is a solid deal. A very solid deal. And that means arbitrageurs and investors should keep their eyes open and their wits ready. There is opportunity here.

Port and logistics operator DP World (DPW DU) saw its parent Port and Free Zone World, a wholly-owned subsidiary of state investment vehicle Dubai World, announce on 18 Feb that it would acquire the 19.55% of DP World's shares listed on the Nasdaq Dubai (the other 80.45% is owned by the SOE).It was presented as a fait accompli. Investors in and shareholders of the minority public portion had shown the audacity to not hold the shares forever, indeed to sell them at times, such that, like other stocks in the world, the price occasionally got to levels where some people complained to management.DP World's Corporate Governance Principles include Principle #5 (see p65 of the 2018 AR)Principle 5 The Board must ensure that the rights of shareholders are properly safeguarded and that there is effective dialogue between the Board and the Company’s shareholders.That didn't really happen.Management decided that if marginal sellers were willing to sell in the market, and marginal buyers were not willing to buy it at expensive valuations, it was fitting to conclude that minority investors were not in it for the long-term and deserved to get taken out in a kind of MBO.This is a weird conclusion, and smells more than a little of a contempt for public markets and minorities. The shares traded an average of 398,655 shares a day in 2019, for a total volume during the year of 98.9mm shares. That was 61% of the entire float. DPW management could say that was low for such a big stock, so obviously nobody was interested in the company. Or they could say that it was high (which, on average for a global stock/business with a multi-billion float, it is not), in which case that showed there were no long-term holders.In short, there was an opportunity to buy the company relatively cheaply with cheaply funded debt, and they took it.They announced it. They held an explanatory call. That call didn't go so well. There were some unhappy campers who obviously felt that Principle 5 had not been upheld.But it is a solid deal. A very solid deal. And that means arbitrageurs and investors should keep their eyes open and their wits ready. There is opportunity here. 

DP World: Lousy Governance Is in Traders' Favor Here

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

As <a href="https://www.cineworldplc.com/sites/cineworld-plc/files/reports-presentation/2019/investor-presentation-acquisition-of-cineplex-16-12-2019.pdf" target="_blank" rel="noopener">announced</a> on December 16th, UK-based movie theatre group Cineworld agreed to acquire all the shares of Canada's largest theatre chain Cineplex in an all-cash deal valuing Cineplex at a market cap of CAD2.15bn. The Offer Price CAD34.00 per share comes at strong premia of 41.6% and 39.3% to Cineplex's undisturbed price and 3-month VWAP respectively.The Deal is conditional on the receipt of shareholder approvals from both the Acquirer and the Target and the receipt of regulatory approvals from authorities in Canada and the US. The boards of both Cineplex and Cineworld have approved the deal and have recommended the deal to their shareholders. The transaction is expected to be completed in the first half of 2020.The shares of Cineplex are currently trading above the Offer Price at CAD34.21. However, a closer look at Cineplex's dividend payments paints a clearer picture of what to expect.

As announced on December 16th, UK-based movie theatre group Cineworld agreed to acquire all the shares of Canada's largest theatre chain Cineplex in an all-cash deal valuing Cineplex at a market cap of CAD2.15bn. The Offer Price CAD34.00 per share comes at strong premia of 41.6% and 39.3% to Cineplex's undisturbed price and 3-month VWAP respectively.The Deal is conditional on the receipt of shareholder approvals from both the Acquirer and the Target and the receipt of regulatory approvals from authorities in Canada and the US. The boards of both Cineplex and Cineworld have approved the deal and have recommended the deal to their shareholders. The transaction is expected to be completed in the first half of 2020.The shares of Cineplex are currently trading above the Offer Price at CAD34.21. However, a closer look at Cineplex's dividend payments paints a clearer picture of what to expect. 

🍿Cineplex🍿 to Be Acquired by Cineworld

Canada

Cineplex, Inc. owns and operates movie theaters in Canada.  The Company exhibits regular format films and also digital, 3D and IMAX movies.

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Cineplex Inc (CGX CN)

Cineworld. Looking like a Horror Show, Sell

Cineworld (CINE LN) levered up to buy Cineplex (CGX CN), just as the Coronavirus broke out. A deal that looked ugly prior to collapsing audiences...

Bucephalus Research Partnership

DP World: Lousy Governance Is in Traders' Favor Here

Port and logistics operator DP World (DPW DU) saw its parent Port and Free Zone World, a wholly-owned subsidiary of state investment vehicle Dubai...

Travis Lundy

🍿Cineplex🍿 to Be Acquired by Cineworld

As announced on December 16th, UK-based movie theatre group Cineworld agreed to acquire all the shares of Canada's largest theatre chain Cineplex...

Janaghan Jeyakumar, CFA

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