2023-08-09 11:33:06 ET
Xylem ( NYSE: XYL ) -2.2% in Wednesday's trading as Spruce Creek Capital Management said it is short the stock , which it believes faces a 30%-45% downside risk after the $7.5B acquisition of Evoqua Water Technologies "combines two troubled companies that will fail to deliver value for shareholders."
Spruce Creek said it found evidence that, prior to the Evoqua acquisition, Xylem ( XYL ) was struggling to meet its long-term goals as pressures were increasing, and the Evoqua deal is "an implicit acknowledgment of failure toward its 2025 long-term goals."
Xylem ( XYL ) "obscured the economics of [the Evoqua deal's] promoted cost synergies and believes Xylem is also failing to address revenue dis-synergies from the transaction," the short seller said.
Investors "should be alarmed" that Evoqua recently was charged with revenue accounting fraud by the SEC and remains under federal investigation, and an indictment "could significantly tarnish Xylem's reputation while potentially disrupting its operations," Spruce Creek said.
More on Xylem:
- Financial and valuation comparison to sector peers
- Analysis: Xylem: A Pure Water Play
- Stock price return: Down 5% YTD, up 5.5% in the past 12 months
For further details see:
Xylem a 'strong sell' after Evoqua acquisition, Spruce Creek Capital says