Ramesh Tainwala, chief executive officer of Samsonite International SA, speaks during an interview in Hong Kong, China. (Photographer: Calvin Sit/Bloomberg)

Samsonite CEO Quits in Short-Seller Win Over Household Brand

(Bloomberg) -- In a dramatic takedown by a short seller of a world-famous brand’s top leader, Samsonite International SA’s chief executive officer resigned after an attack on his credentials and the company’s corporate governance.

The world’s largest luggage maker said CEO Ramesh Tainwala has stepped down, according to a statement Friday. Samsonite said the resignation was in the company’s best interest after its board reviewed Blue Orca Capital LLC’s allegations that Tainwala falsified educational credentials. Chief Financial Officer Kyle Francis Gendreau has taken over as CEO.

Samsonite CEO Quits in Short-Seller Win Over Household Brand

The company also released a detailed rebuttal of Blue Orca’s allegations of accounting lapses and poor corporate governance. Investors sent Samsonite’s stock to its biggest gain in more than six years, jumping 9.9 percent in Hong Kong Friday as trading resumed after a week-long halt. The stock plunged 21 percent last week after the report was issued, erasing $1.3 billion in market capitalization.

Terry Hong, an analyst at Guotai Junan Securities Co., said Tainwala’s departure removes risks for investors. “The company has provided a very strong clarification with solid evidence,” he said. “It will help investors rebuild confidence on the financial performance of the company.”

The short seller’s attack on the dominant player in the $19 billion luggage market claims a CEO who has helped the company grow through acquisitions since taking the helm in 2014. The accusations have dented Samsonite’s shares after they almost doubled over the past two years to a record in April, driven by a spate of deals including the $1.8 billion purchase of Tumi.

The resignation is one of the biggest victories in Asia for activist short sellers, who have typically targeted less recognizable companies, with mixed results. In Hong Kong, a broad market rally has caused many bearish wagers to backfire, while investors in Japan have shrugged off many short-seller attacks.

It’s also the latest in a winning streak for Blue Orca’s founder, Soren Aandahl. Before Samsonite, the then-director of Glaucus Research Group, targeted Australian money manager Blue Sky Alternative Investments Ltd., whose shares fell almost 80 percent after Aandahl’s report. Glaucus’s claims last year that Australian sandalwood company Quintis Ltd. made misleading disclosures sent its shares down 79 percent before its suspension from trading.

“The work done by Soren is nothing short of outstanding,” said Marc Cohodes, a Cotati, California-based short seller. Regulators should look closely at the allegations made in the report, he said.

Samsonite CEO Quits in Short-Seller Win Over Household Brand

In Blue Orca’s attack against Mansfield, Massachusetts-based Samsonite, Aandahl accused Tainwala of claiming to hold a doctoral degree in business administration from the Union Institute and University in Cincinnati. His official biography on Samsonite’s website does not make this claim, and the company noted Friday that its disclosure of Tainwala’s background has been accurate since the company’s Hong Kong initial public offering in 2011.

Dr. Ramesh

However, a reference on a website for businesses connected to Tainwala’s family said the group’s flagship “was founded in September 1985 by Dr. Ramesh Tainwala.” The Wall Street Journal reported last week that Tainwala said in an email he never claimed to hold a doctoral degree. He told the Journal he had enrolled for the Ph.D. program in 1992 and friends and colleagues jokingly addressed him as “doctor” afterward.

Tainwala didn’t respond to an email, and the company hasn’t made him available for comments.

Tainwala, 59, started off as a commodities trader before getting into the luggage business as a maker of the plastic sheets that are molded into suitcases. His ties as a supplier to Samsonite led to a joint venture in the late 1990s to manufacture international-quality luggage in India. Tainwala subsequently rose within the ranks at Samsonite, becoming head of Asia-Pacific by 2011 and CEO in 2014.

Samsonite Rebuttal

Blue Orca’s report also questioned related-party transactions between Samsonite and Indian entities controlled by Tainwala and his family. The short seller alleged Samsonite concealed slowing growth with debt-funded acquisitions, including its 2016 purchase of Tumi Holdings Ltd., and inflated profit margins with questionable accounting linked to its takeovers.

“The company’s board of directors stands behind its track record of transparency and corporate governance,” Samsonite said in the statement. “The company’s consolidated financial statements and the related notes to the consolidated financial statements, which are audited by KPMG LLP, are in accordance with International Financial Reporting Standards.”

Samsonite in its statement offered a point-by-point rebuttal to the short-seller’s allegations. Here is a breakdown of the issues:


Blue Orca Allegation


Samsonite Response
Samsonite inflated Tumi’s balance of payables to $139 million so that it could artificially boost marginsBlue Orca has confused “trade payables” with “trade and other payables” in the financial statements. The latter includes accrued expenses and other payables, which add up to $138.7 million as of Aug. 1, 2016
Samsonite may be holding a balance of stale inventory, as statements show a carrying amount at net realizable value of $180.8 million in 2016 and $229.6 million in 2017The figures in its 2017 financial statements were incorrect. The accurate values should have been $73.6 million for 2016 and $100.9 million for 2017. The inaccurate figures do not impact company’s profitability or financial position
Abhishri, a luggage maker owned by Tainwala’s family, buys products from Samsonite’s Chinese suppliers as a middle-manAbhishri doesn’t act as a middle man for Samsonite, which buys finished goods from the company when landed costs of goods from Abhishri is cheaper than other manufacturers
Bagzone, a retailer owned by the Tainwala family, gets better credit terms from Samsonite as it disclosed a receivable balance that exceeds salesBagzone’s receivables are largely reflective of the additional investment Bagzone put into growing the footprint of its retail distribution network in India, which has resulted in increased sales for Samsonite India.
Samsonite India has had 3 auditors in 3 years, which is a “red flag”The auditor used by Samsonite Group in India hasn’t changed. The changes were for Samsonite India’s statutory accounts filed with the Indian government, which are separate, and were due to the preferred auditor leaving one firm to join another

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