A prominent short-seller is taking aim at Credit Suisse overseer Michael Klein over backdoor stock listings. The vehicles are Wall Street’s latest controversial moneymaking niche.
Shares in a healthcare specialist tied to Wall Street dealmaker Michael Klein tumbled nearly 20 percent on Wednesday. The slide followed a frontal attack on the company, Multiplan, by prominent short-seller, Muddy Waters.
New York-based Multiplan went public via a Klein-backed SPAC (short for special purpose acquisition company) four months ago. «In the great present-day money grab known as SPAC promotion, egregious mistakes will be made,» Waters founder and research head Carson Block (pictured below) wrote in the report.
Criticism Against Dealmaker
Block argued that Multiplan is about to lose its biggest client, which is launching a rival service. The short-seller’s broader case is not against the company but against Wall Street itself – and Klein. The SPAC, or blank-check, playbook is to create a shell company, seek a public listing for it, and then use the money raised through the listing to merge with an actual business.
(Image: still from CNBC)
A veteran Citigroup dealmaker with impeccable ties to Saudi Arabia, Klein is in the midst of Wall Street's SPAC craze. In July, he filed plans to raise $1 billion through a so-called blank check company, a trend which even ex-UBS boss Sergio Ermotti wants in on.
«Significant Value Destruction»
Block highlights the vehicles' opaque set-up, huge fees, and tendency to attract short-term shareholders versus long-term investors. «A business model that incentivizes promoters to do something – anything – with other people’s money is bound to lead to significant value destruction on occasion,» Block wrote.
«That’s even more true when a SPAC buys a business from the fourth consecutive private equity group to have owned it. C’mon, man,» said Block, who didn’t mention Klein by name. The report also made no mention of Credit Suisse.
Even if SPACs are a Wall Street phenomenon, Swiss banks are in their midst. UBS recently pitched the idea to its super-wealthy clients, and the bank also promoted its chief SPAC banker, Jeff Mortara, last month.
Landmark Blank-Check Deal
For Klein, who took home 450,000 Swiss francs ($490,000) during his most recent one-year term on Credit Suisse's board, SPACs represent big money. Block harshly criticizes Klein indirectly: «We believe that Multiplan is public because of a grievous oversight in due diligence by the SPAC promoter.»
Besides Klein, Credit Suisse employs the banker who led the first underwriting of a SPAC in 2005, Niron Stabinsky (he is a managing director in New York). Klein’s Multiplan deal in July was a landmark for its size ($11 billion).
