Why 21Vianet (VNET) Stock Is Recovering Today

NEW YORK (TheStreet) -- Shares of 21Vianet  (VNET) surged 28.61% to $19.96 on Friday to recover its major losses from earlier in the week after Morgan Stanley  (MS) defended the company's core business despite fraud allegations.

The firm reiterated its "overweight" rating with a $35 price target on Thursday after the company held a conference call to respond to the claims. Morgan Stanley said 21Vianet's core business is still intact and values it at $1 billion, or $15 per ADS. The firm also sees upside as management clarifies some disputed items.

Trinity Research published a 121-page report Wednesday in which it claimed the company has committed fraud via fabricated SEC financial statements and illegal activities conducted in China. Trinity presented evidence including Chinese regulatory and State Administration for Industry and Commerce filings, photos of so-called "ghost offices" and "ghost acquisitions," original Chinese legal documents, and findings from in-person visits to all 72 of 21Vianet's data centers.

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Trinity proposed that the fraud, coupled with 21Vianet's RMB3 billion in debt, would bring the stock down to zero and would cause the stock to be de-listed in the near future.

21Vianet issued the following statement early Wednesday afternoon in response to the allegations:

"21Vianet believes that the allegations made contain numerous errors, unsupported speculation and malicious interpretations of events. 21Vianet is committed to providing more detailed response to the allegations promptly and to rebutting false claims that attempt to undermine confidence in its business, financial condition and results of operations.

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