TEMPE, Ariz. (
) -- The solar-energy sector is known for volatility when it comes to trading. But
recent meet-the-management event in New York showcased a different kind of volatility, one that can erupt when solar executives don't like the contrarian opinions of skeptical analysts and investors.
Like the bouncers that stand guard outside Moscow VIP nightclubs, booting anyone but Gazprom-level oligarchs, First Solar barred a hedge-fund manager who maintains a short position on the stock from attending the meeting.
The First Solar event was held to provide guidance on 2010, before which some analysts had questioned
whether First Solar was being too conservative for such a fast-growing company.
First Solar also used the event to introduce its new chief executive, Rob Gillette.
Andrew Kaplan, however, a manager and analyst at the New York-based hedge fund
Harvest Capital Strategies
, was not among the attendees who got to shake the new CEO's hand.
A First Solar spokeswoman, Lisa Morse, said the solar company "did not exclude anyone based on anything. We had some of our biggest critics and fans in attendance." She said the only reason anyone was excluded from the event was if they had not sent an RSVP in time. Also, Morse said, the hotel ballroom had reached capacity and the hotel's fire code mandated that attendees lacking proper confirmation take part in the event through its webcast.
These explanations, however, don't quite reflect reality. Emails between Kaplan and First Solar's third-party investor-relations firm, Sapphire Investor Relations, show that Kaplan sent an RSVP on Dec. 8. Though he missed the deadline by four days, Sapphire nonetheless put him on the list of attendees.
A badge was also waiting for Kaplan when he arrived at the hotel.
When asked to respond to these facts, Morse said the company was investigating to "see if it was a clerical mistake," which would make it the second-most-significant investigation in the U.S. solar industry after
ongoing internal accounting audit.
Kaplan said that shortly after arriving at the Westin for the meeting, his badge was taken away from him by Sapphire staffers, who told him that the First Solar's management didn't want him in attendance.
Morse wouldn't comment when directly asked if First Solar had barred Kaplan.
Because First Solar broadcast the event on the Internet, the company is covered when it comes to selective-disclosure rules.
Still, the whole episode raises the question: should investors be concerned that First Solar is stifling dissent from legitimate critics of its business strategy?
Kaplan thinks so, and after making a mad dash back to his office so he could watch the event via the Webcast, he wrote a letter to First Solar CFO Jens Meyerhoff and its vice president of investor relations, Larry Polizzotto, to express his concerns. Kaplan hasn't yet received a reply.
The First Solar spokeswoman said she had no knowledge of the letter. However, a copy of the emailed letter was provided to
Kaplan says his biggest concern isn't his expulsion -- though he said it was somewhat embarrassing to be banned from the event in front of his peers. Instead, Kaplan's biggest beef with First Solar is the one that should matter to investors: will the company's management acknowledge intelligent, well-reasoned opinions that don't reflect its own outlook?
Kaplan explained to
that in research reports on First Solar written since he sent his RSVP he expressed "a vocally negative opinion on the stock," but it was a matter of professional investment analysis.
Kaplan's biggest bone of contention with First Solar is that the company's cost curve has begun to flatten out, while the cost declines of its Chinese competitors have begun to accelerate. As a result, Kaplan sees First Solar as having
cost advantage (or to be at a cost disadvantage) by mid 2010. FSLR's high valuation -- 5x revenues versus 1x-2x for its Chinese peers -- exists because it has been able to generate much higher margins than its competitors. By his way of thinking, as its cost advantage disappears, its margins will collapse, and First Solar will no longer sustain a premium valuation versus the Chinese solar players.
Kaplan wrote in his letter to the First Solar officers:
"The harm I suffered at your hands, other than the embarrassment of having to explain my departure to colleagues, was minimal ... I'm sure it goes without saying that
this is not the way most successful management teams operate.
"Managements who go out of their way to stifle dissenting viewpoints fall into one of two camps:
1) Those who are actively attempting to deceive investors, and therefore find it threatening to have analysts around who may see through the ruse;
2) Those who truly believe that their company will succeed, but are simply offended by the audacity of analysts who disagree."
Kaplan continued: "In my experience, it is worthwhile to short both groups; the first because the truth eventually emerges, and the second because managements who cannot bear to hear dissent from analysts are also not open to new information from within their industry, and are likely to become road kill at the expense of more nimble competitors."
Kaplan alluded to the fact that current First Solar CFO Jens Meyerhoff spent six years as the CFO of Form Factor, a company once "as arrogant as First Solar, but in recent years humbled by industry transitions they failed to predict."
Kaplan also strove to reach a middle ground with First Solar's management. "I have also seen analysts who become so wedded to a point of view (positive or negative) that they are physically unable to listen to information which contradicts their beliefs ... I hope I never fall into this category. That is exactly the reason I planned to attend your event: to hear management's point of view and see whether there was anything in it which required me to rethink my position."
As it turns out, Kaplan says, there wasn't anything in the Webcast that would make him change his mind about the First Solar outlook. (Perhaps he could put an an informal overweight on First Solar's lack of civility, or work on a highly theoretical algorithm that seeks to incorporate management rudeness into financial analysis.)
Ultimately, the market deals in dollars and cents, and Kaplan requested that First Solar refund him the $9 that he incurred for the cab ride back to his office after being expelled.
One wonders whether First Solar will lifts its 2010 capital-expenditure guidance from $550 million to $550,000,009, to cover the banished analysts' cab ride.
On the other hand, if Kaplan is right about First Solar being headed in the wrong direction strategy-wise, Harvest Capital's short position on First Solar stock should reap enough profits to cover future cab rides, if First Solar ever again decides to send the hedge fund manager packing.
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