Lewis, the furniture retailer-cum-microlender, is gunning for the man it holds responsible for its recent woes, Dave Woollam. Woollam, along with Clark Gardner, runs Summit Financial Partners, which is on a campaign against lenders that rip off the poor. In Lewis’s case, it began a year back, when Fin24 published gory details of Summit’s “mystery shopping trip” to a Lewis store in Howick, which appeared to show various breaches of the National Credit Act, including an assistant fiddling living expenses to ensure a customer got more credit.
Largely thanks to Woollam, Lewis refunded R67.1m to customers who had been told to pay “unemployment insurance” even though they were unemployed or had been retrenched.
It wasn’t the first time Lewis found itself in the dock over its lending practices, but it probably contributed to its 48% share price slide over the past year.
But the latest development is more intriguing. A few weeks ago, Summit applied to have four Lewis directors — CEO Johan Enslin, chairman David Nurek, finance director Les Davies, and Hilton Saven — declared “delinquent”.
In its reply, Lewis launched a brutal counter-offensive, accusing Woollam of having a “long-standing short position on Lewis’s shares at the time of his campaign”. This campaign, it said, is a “concerted attempt by him to drive down the price of Lewis’s shares [so that] he may opportunistically benefit”.
Now, you might instinctively consider this a cretinous response to being caught out — reflexively playing the man rather than addressing the issue of wayward credit practices.
But there are deeper implications to what Lewis is saying: should somebody be allowed to mount a campaign against a company to drive down the share price and make a killing?
The first obvious question is: did Woollam actually have a short position at the time?
On this point, Woollam says: “neither I, nor any of my associates have a short position in Lewis. My only exposure to Lewis is a small long position in its ordinary share.”
Well, you’d like to believe a lawyer like Nurek would have checked his facts. So perhaps Woollam had a short position at some other stage in the past year. This is possible — though Woollam has yet to clear this up.
In a statement this week, Woollam says that Lewis has skirted the issue and instead tried to smear him: “I am motivated by the need for reform.”
This case resonates with that of “nutrition” company Herbalife in the US, where 50-year-old hedge fund guru Bill Ackman has been campaigning against the company since 2012, claiming it’s nothing more than “the best-managed pyramid scheme in the history of the world”.
Ackman very publicly took a US$1bn short position on Herbalife. It hasn’t worked: Ackman shorted the stock at $48/share, and it’s now trading at $61.
But the difference is that, in the Herbalife case, Ackman publicly “outed” his short position. Had Woollam held such a short, I believe he should have publicly declared it — even if there was no legal duty to do so.
Still, Jean Pierre Verster, a hedge fund manager who now works for Fairtree Capital, says he has no problem with someone taking a short position, then publicly criticising a company.
“The real question is always whether the criticism is justified. I don’t have a problem with people taking a short position and then showing up a company’s faults — it happens in the US all the time. The thing is, if your argument isn’t strong, your short can backfire and the share price will rise,” he says.
In this case, questions over Lewis’s business have been swirling for years — not just a few months. As Barclays analyst Rod Salmon wrote in a research note a few weeks ago: “We believe the retail model needs to change in order for Lewis to be successful in the future.”
A return to the basics of selling furniture, rather than relying on hefty finance charges, is very evidently the right way to go.