TAL Education Says Muddy Waters' Report Erroneous and Malicious; Stock Down Again
The Chinese education company responded to allegations by Muddy Waters today in an attempt to calm its shareholders. Still, the stock was trading down 1.5 percent intraday.
In a statement titled "Response to Deceptive Short Seller Report," TAL Education Group (NYSE: TAL) rebutted Muddy Waters' allegations today, while its stock continued its slide and fell an additional 58 cents intraday.
Noted short-seller Muddy Waters Capital LLC released a report on Wednesday in which it said TAL "fraudulently overstated" its profits for at least the past two years and falsified business transfers.
In response, the stock of the Beijing-based company fell 10 percent in trading Wednesday, ending the day at $41.11 per American depositary share. Today, its shares went down 1.5 percent more, to $40.52 per ADS in afternoon trading.
Muddy Waters said it estimated TAL's operating profit was inflated by at least 21.6 percent, pre-tax profit was inflated by at least 39.8 percent, and net income was overstated by at least 43.6 percent in the company's financial reports.
The rest of the report by Muddy Waters contained the background and financial references describing two allegedly fraudulent business transfers, Beijing Dongfangrenli Science & Commerce Co. Ltd. and Guangzhou One-on-One, from TAL to third companies. Muddy Waters claimed that TAL conducted so-called "asset parking" with the two, falsifying the transfers, as well as reporting wrong timing of investments "to escape auditor and investor scrutiny" and "penciling in" profit from a sale that did not occur.
In its statement today, TAL Education, a K-12 after-school tutoring provider, said its board intends to "review the allegations" with its audit committee and will "consider appropriate actions to protect the interest of its shareholders."
"The allegations made by this short seller contain numerous errors, unsupported speculation and malicious interpretations of events," the company said, adding that TAL "remains focused on its business strategy."
Muddy Waters said the information it gathered came from official documents, including files from China's State Administration for Industry and Commerce (SAIC), and credit reports on certain entities associated with TAL, as well as physical visits to TAL's sites and interviews with employees of TAL and its partners.
The stock TAL Education tanked more than 10 percent since Muddy Waters released its "short" report.
TAL's shares were trading at $40.52 per ADS in the afternoon, down an additional 1.5 percent from yesterday.
(Source: Thomson Reuters Eikon)