Shares of the candy maker Tootsie Roll Industries (TR - Get Report) were falling 1.5% in mid-morning trading on Wednesday after Spruce Point Capital Management forecasted between 25% and 50% downside risk.

It has been assumed for some time now that the maker of Tootsie Roll, Blow Pops, Junior Mints, and Andes Candies would sell itself at a rich premium, but the firm now contends there are "fundamental" flaws with the company which will impede that from happening.

"Sales haven't grown in 6yrs and we estimate it is losing market share in North America," Spruce Point noted. "Our channel checks reveal it uniformly receives the worst product placement on the shelves (esp. during key Halloween selling season). Tootsie's products fail to address consumer demand for healthier products, and it has resisted industry self-regulatory movements to limit marketing to children."

Spruce Point also calls into question the company's finances, warning that it has long been secretive regarding its performance.

"It doesn't hold investor conference calls, invite analyst coverage, and has a minimalistic IR website," the firm noted. It was also critical of Tootsie's SEC filings, gross margins, and "inflated" cash flow. 

"In our opinion, Tootsie is run for the benefit of insiders, while taking advantage of common shareholders through lavish compensation and excessive perks. Its dual class share structure allows Class B shares controlled by insiders to limit common stock voting control, while the Board is stacked with the CEO's allies, none of which have experience in the food industry."

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