Spruce Point Capital Management Announces Investment Opinion: Releases Report and Strong Sell Research Opinion on Danimer Scientific, Inc. (NYSE: DNMR)
NOTE TO EDITORS: The Following is An Investment Opinion Issued by Spruce Point Capital Management
Echoes “Greenwashing” Concerns Regarding Danimer’s Technology Raised By The Wall Street Journal’s Reporting
Highlights Concerns In Light of New Evidence of Biographical Inconsistencies of Its Chief Technology Officer And Corporate Funding To University of Georgia, Where Danimer’s Scientific Studies Were Conducted
Believes That Historical Lawsuits Against Several Insiders Known As The “Bainbridge Five” and the CEO’s Prior Public Company Provide Chilling Insights That Should Be Carefully Considered By Current Danimer Shareholders
Warns Investors That Danimer Came Public Via A SPAC Promoted By An SEC-Sanctioned Former Broker and Has a Valuation Currently In Excess of $2 Billion Despite No Near-Term Path To Profitability with Growth Plans That Are Highly Dependent On Manufacturing Capacity Expansion, Unproven At Scale, And Stable Canola Oil Prices Which Have Instead Materially Increased
Urges Investors To Visit www.SprucePointCap.com to Learn Why We Believe Investors Face Up To 65% Downside Risk with 100% Long-Term Downside Risk And Follow @SprucePointCap On Twitter For The Latest On $DNMR
April 22, 2021 10:00 AM Eastern Daylight Time
NEW YORK--(BUSINESS WIRE)--Spruce Point Capital Management, LLC (“Spruce Point” or “we” or “us”), a New York-based investment management firm that focuses on forensic research and short-selling, today issued a detailed report entitled "When The Tide Goes Out, What Will Wash Ashore?” that outlines why shares of Danimer Scientific, Inc. (NYSE: DNMR) ("Danimer" or the "Company"), face up to 65% downside risk and 100% long-term downside risk. Download or view the report by visiting www.SprucePointCap.com and follow us on Twitter @SprucePointCap for additional information and exclusive updates.
Spruce Point Report Overview
We urge investors to review key findings in Spruce Point’s report and hold management accountable for answers to the following issues:
- For a business promoted as an Environmental, Social, and Governance (“ESG”) play, Spruce Point finds several corporate governance red flags at Danimer with many of the same executives still in place.
- Current Danimer CEO Stephen Croskrey was directly involved in a potential cover-up of defective body armor when he served as President of Armor Holdings Product Division (“Armor”), a division within the public company Armor Holdings. Armor admitted it knowingly manufactured and sold defective bulletproof vests and agreed to pay $30 million to resolve the allegations. Based on a related SEC lawsuit, under Croskrey’s tenure, Armor engaged in improper accounting standards even after senior officers were put on notice by outside auditors.
- Months before going public via special purpose acquisition company (“SPAC”) in December 2020, promoted by Gary Wunderlich, an SEC sanctioned individual, Danimer settled a messy lawsuit with former CEO Paul Pereira. Pereira claimed Danimer was controlled by insiders known as the “Bainbridge Five” who demanded Pereira enter into a side arrangement with a director serving on the Board to share his compensation. Four of the 5 members of the “Bainbridge Five” are still involved with Danimer: John Dowdy (CFO), Greg Calhoun (Director), Richard Ivey (Marketing), and Ralph Powell. In addition, Pereira alleged “criminal and/or unethical activities, including without limitation, securities fraud.” These allegations are concerning in light of Spruce Point finding evidence of inconsistent statements from Danimer related to the Company’s facilities sizes, capacity and CapEx.
- Spruce Point is concerned by several educational inconsistencies in the biography of Danimer’s Chief Technology Officer. There are notable revisions to his educational history, specifically around the Massachusetts Institute of Technology (M.I.T.). In addition, there is an approximate ten-year work history gap on his biography.
- Danimer has several ties to the University of Georgia and is a financial backer of the lab and professors who authored the paper Danimer uses to support its biodegradability claims. A recent article from The Wall Street Journal raised concerns about Danimer’s product biodegradability claims. Dr. Jason Locklin, a University of Georgia professor involved in the study and Company press releases, has several ties to Danimer including receiving financial support and having several former students employed at the Company. Dr. Joe Grubbs, an author of the study and faculty member of the UGA New Materials Institute, is a current employee of Danimer. Spruce Point finds Danimer’s website omits press releases between 2012 – 2017, including a removed announcement of funding to University of Georgia Labs. Spruce Point also finds evidence that Danimer has made subtle revisions to its investor presentation, walking back biodegradability statements. In addition, we find an academic paper, “Biodegradation of Wasted Bioplastics in Natural and Industrial Environments: A Review,” that contradicts the University of Georgia research and shows how polyhydroxyalkanoates (“PHAs”) – Danimer’s key product sold under the brand name NodaxTM and derived from plant-based feedstock – actually have limited benefits.
- We believe Danimer is peddling an inconsistent, ever-changing story to investors which will likely fail to deliver on its promises. The Company has already walked back recently issued expectations for near-term profitability and missed its initial timeline for its Kentucky facility expansion. Spruce Point finds multiple conflicting sources of Danimer’s facility sizes and production capacity and found inconsistences between reported figures and city filings for Kentucky facility capital costs. Spruce Point warns investors that Paul Pereira, Danimer’s former CEO who filed a countersuit against the Company, made allegations that Danimer provided him “tremendous misinformation […] This included the status of key customers, the status of internal controls in the company, accounting systems, logistics, ordering, the cost of plant build out, etc.”
- Danimer is attempting something no one has been able to achieve at scale in commercializing PHA. Metabolix (since renamed Yield10 Bioscience) tried and failed, even with a blue-chip S&P 500 partner, Archer-Daniels-Midland, and a seasoned Pepsi director on its Board. Investors placing hope that Danimer’s promoted partnerships with Pepsi and Nestlé will ensure success should review the Metabolix failure carefully. We find evidence that Pepsi has recently sold its equity stake in Danimer. In addition, both the top Pepsi and Nestlé executives with close relationships to Danimer recently resigned. Spruce Point believes PHAs are also becoming less economical as canola oil prices escalate. Canola oil is the key feedstock ingredient to making PHAs, and its price has risen 25% year-to-date as measured by futures contracts. Danimer has not detailed any hedging arrangements in its SEC filings.
- We believe Danimer’s current valuation is highly elevated and unsustainable from the SPAC euphoria and investor appetite for environmentally friendly investing plays. Danimer is currently losing money and its long-term financial projections, produced in October 2020 before canola oil prices rose over 30%, imply margins greater than currently achieved by both the Company’s selected peers and similar chemical/plastic producers. Under the assumption that the Company can achieve its stated projection, we believe Danimer’s shares have ~50% downside to $12.50 per share, which represents a multiple at the higher end of chemical/plastics peers. Spruce Point believes a realistic valuation in line with more relevant chemical and plastic peers’ multiples and margin profiles reflects a price target of $8.75, representing ~65% downside. In the past, Danimer has faced financial distress and required a restructuring. If history were to repeat and it lost access to capital, its shares could be worthless.
The research note can be found at www.sprucepointcap.com and updates will be posted on twitter @sprucepointcap.
