Solutions 30: suspended in animation

At the crack of dawn on Monday morning, FT Alphaville stared in disbelief at what had just crossed the French wires.

Solutions 30, a €1.1bn Luxembourger man-in-a-van telecoms and energy outsourcer listed in France, had asked Euronext Paris to suspend its shares “until further communication is released”. Four trading days later, the equity remains frozen at €10.38.

So what on earth is going on?

Well, as you might recall from our coverage in December and what’s happened since, the outsourcer, which counts European corporate heavyweights such as EDF, Orange and Unitymedia among its customers, has suffered a torrid six months.

On December 9, news of an anonymous short-seller report on the company hit the French press. Two days later, the shares were temporarily suspended after Muddy Waters — the American activist investor, which had been short the stock since May 2019 — joined the fray. The company responded in detail to the allegations, but it didn’t alleviate the market’s concerns. By Christmas, the share price had halved to under €10.

The bulk of the anonymous report, and Muddy Waters’ five follow-up open letters through December and January, focused on the company’s historical relationship with an Italian accountant named Angelo Zito who, according to local reports, spent time in prison in 2000 over his links to the Sicilian mafia. Solutions 30 acknowledged it had a relationship with Zito, but said that it had ceased all ties with him in 2016 once they found out about his past the December before.

Solutions 30, in an effort to clear its name, commissioned an independent audit by Deloitte and local accountant Didier Kling Expertise & Conseil in late January. Published on April Fools’ Day, it found the various accusations against Solutions 30 “unfounded and erroneous” and said they had not “identified any evidence to corroborate the allegations of money laundering, in connection with organised crime”. The shares rallied 30 per cent on the news, settling at €14, a third below the company’s 2020 high. 

A sixth and seventh letter from Muddy Waters the following week caused the stock to fall once more. This prompted the publication of a lengthy letter from chief executive Gianbeppi Fortis on April 12, in which he stated that Solutions 30 has “decided to no longer respond publicly to slanders that are totally unfounded” and invited shareholders to file legal complaints with the authorities against these “false and misleading publications”. The California-based activist replied with a YouTube video laying out its short thesis a fortnight later.

Phew. Now you’re up to speed, here’s what FT Alphaville thinks might be going on with the stock suspension.

The immediate thought that springs to mind is Solutions 30’s full-year results. Just over a fortnight ago the company released its 2020 numbers which, on the face of it, looked rather good. Revenues grew 18 per cent year-on-year to €819m, with Ebitda margins touching 13 per cent, and the company recorded a net cash cushion of €59m. Not bad at all.

Yet, there was a wrinkle: the results were not audited. Solutions 30’s auditor? EY. The firm took the reins from Grant Thornton in 2019.

In the results press release, the company said the “complete consolidated financial statements, including the notes, will be made available as soon as possible”. Silence has followed.

That makes Solutions 30 the only company in the CAC 60 — France’s mid-cap index — not to report full year audited results, according to French financial daily Les Echos. So here we have a company under scrutiny for its accounting audited by a firm under scrutiny for its audits of corporate disasters like Wirecard, NMC Health and Luckin’ Coffee.

EY Luxembourg declined to comment, citing professional secrecy obligations.

The French investing forums however, have another suggestion: perhaps there is imminent news of a key investor on the shareholder registry, with the elongated suspension due to the details of the deal being ironed out. The idea sort of adds up, Gianbeppi Fortis floated it in his most recent letter, writing:

The duty of the company and its management is to examine all strategic options in the best corporate interests of the company and its stakeholders. All options are being contemplated, including the strengthening of the company’s shareholder base, which could go as far as a delisting.

Yet here is where the logic somewhat breaks down: if a negotiation was in progress — for either an anchor investor or a full takeover — why wouldn’t Solutions 30 just put out a press release stating it? Under the rules of the AMF, the French regulator, discussions regarding a potential takeover have to be disclosed by the bidder, unless the negotiations are kept confidential. However, if the share suspension is a public signal that there’s a negotiation, then that would negate any confidentiality.

And, on the idea of an incoming anchor investor, even if a private negotiation for fresh capital was in progress, how could the company justify a suspension of the stock on that news alone?

It doesn’t quite add up.

Whatever the reason, Solutions 30 is keeping mum. The company declined to comment for this article. It is worth pointing out, however, that there is no specific time limit on the listing being resumed, according to both European and French regulations. So the situation could drag on.

The longer the shares remain frozen, however, the deeper the suspicion might grow that the news is negative. Judging by the panicked discussions among investors online, the fear seems to be already setting in.

Additional reporting by David Keohane

Related Links
Oddo call for an independent audit at Solutions 30 — FT Alphaville
Solutions 30 suspends shares after Muddy Waters joins the fray — FT Alphaville
Solutions 30 falls a fifth on news of an unpublished short report — FT Alphaville
Solutions 30: a €1.1bn question mark — FT Alphaville
Solutions 30 and the disappearing audit letter — FT Alphaville