For more than two years, billionaire hedge fund manager David Einhorn has been vocally betting against
But Einhorn’s campaign against Green Mountain Coffee Roasters suffered a serious blow on Wednesday afternoon after the Keurig coffee machine and K-cup seller announced that it had signed a $1.25 billion deal that will see
The fact that Green Mountain is partnering with Coca-Cola is bad for Einhorn's short thesis for two reasons. First, the deal appears poised to dent the February returns of Einhorn’s Greenlight hedge fund. Shares of Green Mountain opened 35% higher on Thursday on news that Green Mountain and Coca-Cola are now partners in what looks like a short squeeze. The stock was changing hands for more than $109, around its all-time high, having exploded since it was trading for less than $18 in the summer of 2012. On the surface, it appears Einhorn is feeling some pain. He has vocally been shorting the stock for a long time and as recently as October Einhorn told his Greenlight investors in a letter that he had added to the Green Mountain short position, using about two pages of a seven page investor letter to trash the company. Through a spokesman, Einhorn and Greenlight, however, declined to comment. It is theoretically possible that Einhorn has covered his short position. The short interest in the stock represented about one quarter of the shares outstanding as recently as January, so someone appears to have gotten caught.
The second problem for Einhorn and the shorts is the optics of the Coca-Cola deal. For many months, Einhorn has criticized Green Mountain’s accounting, saying in October that the company is “potentially booking hundreds of millions of dollars of non-existent K-Cup sales.” Einhorn also compared Green Mountain CEO Brian Kelley to John Mitchell, the Attorney General during the Nixon Administration who went to jail over the Watergate cover-up. But Einhorn may have overlooked the significance of Kelley’s past employment as an executive at The Coca-Cola Company.
The fact is that the world’s biggest beverage company seems ready to partner with Kelley and does not have the kind of concerns over Green Mountain’s accounting that would stop Coke from becoming a major shareholder of Green Mountain. Another way of putting it is that Einhorn’s very public accounting criticisms don’t seem to worry a board of directors that includes Howard Buffett, Barry Diller and Herbert Allen.
None of this means that Einhorn’s other critique over the sustainability of Green Mountain’s core Keurig coffee business, which is no longer growing as robustly as it has in the past, is not valid. The Keurig Cold system won’t be available until 2015 to solve those financial problems. Maybe it won’t succeed. But an iconic American brand is now part of the Green Mountain story.
