Fri, Aug 16, 2019|Whitney Tilson

The WeWork scam; Evaluating GE; Druckenmiller buys GE; Briggs & Stratton hit a 45-year low; Overstock CEO Takes Aim at 'Deep State' After Romance With Russian Agent

1) Following up on Wednesday's e-mail about WeWork, the more I learn about this company, the more obsessed I get... It's a wild combination of Uber, Tesla, the Fyre Festival, and Theranos! It's not a fraud, but it's a total scam.

You heard it here first: I don't think this IPO happens, even with some of the biggest banks on earth pimping themselves for at least $100 million in fees. If the SEC doesn't nuke this pig, the markets will, as investors finally appear to be rediscovering the concept of risk. As one of my friends wrote to me:

I think the market has gotten a lot more discerning in the last two weeks of money-losing 2022-2024 profit stories, plus WeWork is especially hairy on corporate governance and business model, even among this speculative cohort.

If we're right, then things could get ugly fast, given the company's horrific cash burn...

From the "you just can't make this stuff up" department, in its S-1, the company disclosed:

In July 2019, WE Holdings LLC assigned residual rights related to "we" family trademarks to the Company, which we desired to obtain following our rebranding in early 2019. In consideration of this contribution and in lieu of paying cash, the Company issued to WE Holdings LLC partnership interests in the We Company Partnership with a fair market value of approximately $5.9 million, which was determined pursuant to a third-party appraisal.

Let me translate this legal gibberish for you:

Co-founder and CEO Adam Neumann decided to re-brand WeWork as "The We Company"...
Of course, to do so, the company had to gain legal rights to this new name...
But – surprise! – someone else already owned it...
To get the rights, The We Company paid $5.9 million to WE Holdings LLC...
Which is owned by... wait for it...
Neumann!

For more on the various absurdities surrounding Neumann, his wife, and his company, I recommend these articles:

2) After reading Wednesday's e-mail about General Electric (GE), one of my friends e-mailed me and said that investor, author, and blogger Jeff Matthews of Ram Partners gave "one of the best investment presentations I can recall" – entitled "Evaluating GE: What Would/Did Warren Do?" – at my Value Investing Congress in October 2008.

I confess that I had completely forgotten about it, but after reviewing the succinct 24-slide deck, my friend is right... It's outstanding.

It's amazing, 11 years later, how little things have changed at GE. It's still a black box, still has too much debt, and is still playing games with the numbers...

That said, at least one smart investor thinks it's a buy: Stanley Druckenmiller says he bought GE stock during plunge amid fraud accusations.

3) Briggs & Stratton (BGG) reported earnings yesterday morning and the stock fell 45%, hitting a 45-year low. That's pretty unusual, so I decided to take a look and quickly found a short report that was posted in January on my favorite investing website, ValueInvestorsClub. (BGG is down 62% since then.)

I wish I could say the stock was interesting, but it's not. The business is in full-scale collapse, which management is trying to blame on weather. But as the VIC write-up shows, it's more likely due to a shift to electric lawnmowers, where BGG has no presence...

4) I had a pleasant lunch with Overstock (OSTK) CEO Patrick Byrne in 2006. He's quite a character with an incredible story of overcoming cancer. He's also completely nuts, trafficking in all sorts of wacky conspiracy theories. Here's the latest bizarre story he's associated with (which has crushed his stock)... Overstock CEO Takes Aim at 'Deep State' After Romance With Russian Agent. Excerpt:

They met at a libertarian conference in Las Vegas in July 2015, where they discussed Milton Friedman, Anton Chekhov and John Locke.

He was the philosophizing founder and chief executive of Overstock.com, a publicly traded e-commerce retailer that sells discount furniture and bedding. She was an ambitious graduate student from Russia.

It was the start of a three-year relationship between the e-commerce executive, Patrick Byrne, and the young woman, Maria Butina, that became romantic at times. She is now serving 18 months in prison after being accused by federal prosecutors of trying to infiltrate powerful political circles in the United States at the direction of the Russian government. She ultimately pleaded guilty to a lesser charge.

Mr. Byrne's relationship became widely known on Monday, when his company took the unusual step of issuing a news release that called attention to it. In the release, which was put out in response to a report that Mr. Byrne had been involved in the federal inquiry into the 2016 presidential election, Mr. Byrne said that he had been helping law enforcement agents, whom he referred to as "Men in Black," with their "Clinton Investigation" and "Russia Investigation."

In an interview late Wednesday, Mr. Byrne said he wanted to shed light on what he saw as problems in the way top law enforcement officials had handled the government's case against Ms. Butina.

The release, titled "Overstock.com CEO Comments on Deep State," sent the company's shares plummeting more than 30 percent over the next two days, while opening an intriguing new chapter in the tale of Ms. Butina and her connections to influential Americans. Her lawyer, Robert Driscoll, confirmed that Ms. Butina and Mr. Byrne had been "romantically involved" and that, according to Mr. Byrne, government officials had instructed him on how to interact with her.

In the interview, Mr. Byrne said he was still "quite fond" of Ms. Butina. "Maria should go home and be president of Russia one day,'' he said. "That is the best thing that could happen to Russia and the U.S."

Best regards,

Whitney