By Sam Boughedda
Short seller Spruce Point Capital Management released a short report on Essential Utilities, Inc. (NYSE:WTRG) Wednesday, claiming they see a potential 35% to 50% downside in the stock.
Spruce Point has "grave concerns" regarding the efficacy of WTRG's business model, the accuracy of its financial reporting, and its ability to meet financial obligations and targets following the company's recent $4.3 billion levered acquisition of Peoples to diversify into natural gas.
WTRG shares fell as low as $40.64 in the early part of Wednesday's session but have since recovered to around the $41.90 mark, up just below 1% on the day.
"Based on our analysis of over 30 years of financial data and public information, we question the public benefit of WTRG's business model and believe it is a vehicle for insider enrichment that operates akin to a Peter-to-Peter-to-Paul scheme whereby money from new and current investors is used to pay existing investors a highly promoted dividend," they wrote.
"Based on documented history of a Board member referencing the current Chairman & CEO as 'disingenuous' and evidence that the Audit Chairman once advised a company that filed for bankruptcy and was described by the bankruptcy trustee in court documents as fraudulent and with 'many of the characteristics of a Ponzi scheme,' we do not believe the Board is best equipped to look after shareholder interests," they added.