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Green Mountain short seller says founder should go
June 6, 2012 / 6:00 PM / 6 years ago

Green Mountain short seller says founder should go

NEW YORK (Reuters) - An investor who is betting on a continuing slide in shares of Green Mountain Coffee Roasters GMCR.O is suggesting it may be time for the coffee manufacturer’s founder, Robert Stiller, to leave the board of the Vermont-based company.

Green Mountain Coffee single-serve K-Cups are pictured in New York, May 3, 2012. REUTERS/Brendan McDermid

Investor Daniel Yu raised the idea of Stiller stepping down in a June 6 letter to management reviewed by Reuters.

On May 8, Green Mountain stripped Stiller of his role as chairman of the board after it was revealed that he made stock sales in violation of the company’s internal policy.

A Green Mountain spokeswoman Suzanne DuLong said in response to Yu’s letter: “GMCR’s Board of Directors acted swiftly and decisively on behalf of our shareholders.”

Yu, who has been shorting, or betting on a decline in Green Mountain’s stock for several months, began going public with his critiques of the company and its management about a month ago.

Shares of Green Mountain have been cut nearly in half this year and currently trade around $25, but not before hitting its 52-week high of $115.98 on September 20, 2011. It is rare that short sellers disclose the extent of their positions and exposures.

The New York-based trader is part of a growing legion of short sellers, led by hedge fund manager David Einhorn, who are seeing a dim view of the future growth prospects for Green Mountain’s single-cup coffee manufacturing strategy.

“Perhaps Robert Stiller, now your former chairman, should leave the board entirely,” Yu wrote in a four-page letter.

In the letter, Yu also raised a number of questions about the company’s second-quarter sales revenue miss and management’s difficulty in providing a rationale for the miss to investors.

“You have done a poor job explaining yourself to investors,” wrote Yu, who has an avid following amongst traders on Twitter where he goes under the name “LongShortTrader.”

Green Mountain shares were pummeled in May after the company reported second-quarter sales of $885 million - a figure that came in well below the $972 million analysts were anticipating.

In response, DuLong said Green Mountain has been “as transparent as possible with regard to our second-quarter performance.”

She reiterated Green Mountain’s May 2 conference call telling investors: “We are working to thoroughly investigate the variances between our actual and expected sales, both top-down and bottom-up.”

Soon after the company reported those disappointing earnings, it was revealed that Stiller and other board member had to sell millions of shares of stock in response to margin calls by bank. The company demoted Stiller and lead director William Davis after learning of the stock sales, but both remain on the board.

Stiller, who founded Green Mountain, served as chief executive until 2007.

In his letter to Green Mountain, Yu said the company would have an easier time managing its sale forecasts if it did not rely on an outside company, M. Block & Sons, to distribute roughly 40 percent of its coffee products. “Perhaps it’s time for you to take matters into your own hands and handle the processing/distribution function entirely in-house,” he wrote.

DuLong rejected Yu’s concerns about M. Block and added, “Our challenge in projecting second-quarter sales was unrelated to our distribution through M. Block.”

She said Green Mountain relies on third-party firms like M. Block to handle fulfillment, opting to invest its resources in research and development.

The U.S. Securities and Exchange Commission, since fall 2010, has been looking into some of Green Mountain’s revenue recognition practices and has requested information about its business dealings with M. Block, according to regulatory filings and statements made by a Green Mountain lawyer earlier this year.

Shares of Green Mountain, in afternoon trading Wednesday on the Nasdaq Stock Market, were up 7.9 percent to $24.76.

Reporting By Jennifer Ablan and Matthew Goldstein; editing by Gunna Dickson

Our Standards:The Thomson Reuters Trust Principles.
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