The shares of Nikola Corporation (NASDAQ: NKLA), thought to be a Tesla (NASDAQ: TSLA) killer, shot up a couple of days ago on news that Nikola had cut a deal with General Motors. This was very painful for the many speculators who had sold Nikola stock short.
Yesterday, Hindenberg Research — a simply spectacular name for a short-side research firm — published a scathing and, it must be said, hilarious report with an awesome title: “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America.” There’s a lot of great stuff in there, for those of you who enjoy that sort of thing. Nikola’s founder, Trevor Milton, comes in for some, er, arresting allegations. The authors make him sound like the Elizabeth Holmes of his industry, for those of you who chortled over the Theranos saga.
Regardless, Nikola responded this morning with a press release that purports to “refute” Hindenberg’s rather detailed allegations. It actually does no such thing, other than to deny them wholesale and to announce that the company had purchased the services of the big law firm Kirkland & Ellis LLP. Nikola also promises to “bring the actions of the activist short-seller, together with evidence and documentation, to the attention of the U.S. Securities and Exchange Commission.”
Oooh. Hindenberg must be quaking in its Cole Haans.
This is, of course, the worst possible response to a short attack. In addition to activating the Streisand Effect, Nikola and poor Trevor — we refer to these electric car dudes by their first name, apparently — have only persuaded the normal reader that the short claims must be true, or substantially so.
So what should Nikola have done? Well, we have some experience in this realm, including a first response, 25 years ago, along the lines of the Nikola “refutation” and the retention of a scary law firm. Driven as it was by the founder’s ego and our own youth and inexperience, the Nikola approach didn’t work, and it only made the public relations problem worse.
Our advice to companies under short attack consists of the following precepts:
- Never let them see you sweat, because they will think they are on to something. The company’s line at all times should be “we will prove our value by executing and delivering on our commitments.”
- Respond to alleged facts with factual responses in an appropriate forum after considered deliberation.
- Skip the big legal threats. The First Amendment protects analytical research, and short sellers usually write their reports with a smooth sophistication that sustains their 1A defense.
- The board should consider hiring Big Law not to threaten, but to do an “independent investigation” of the allegations, and promise transparency.
- Finally, remember that the only people who absolutely must buy your stock some day are short sellers. The smart executive smiles and answers their questions just as if they were supportive longs. Calm execution and confident humility will rattle the shorts back.
Of course, this excellent advice — trust us, we’re right — is not even slightly useful if your company actually is a steaming pile of fraud.
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