Seek responds to short seller, claims Blue Orca report is "littered with inaccuracies"

Seek responds to short seller, claims Blue Orca report is "littered with inaccuracies"

Job search platform Seek (ASX: SEK) has exited a trading halt this morning and responded to allegations from short seller Blue Orca that claimed the Australian company's Chinese subsidiary is "rotten".

Seek CEO and co-founder Andrew Bassat (pictured) has hit back at US-based Blue Orca today, claiming the report is "littered with inaccuracies".

The report alleged Seek's Chinese subsidiary Zhaopin was inundated with fake job postings, and cited whistleblower claims from a Chinese college student alleging the company pays people to submit fake resumes.

Blue Orca, helmed by US-based short seller Soren Aandahl who previously co-founded Glaucus Research, the group responsible for taking down Blue Sky Alternative Investments and Quintis, believes the true value of Seek should be 68 per cent less than it currently is, at around $7.20 per share.

"We strongly disagree with the Report's assertions regarding the Zhaopin platform," says Seek in response to Blue Orca's report today.

"Zhaopin strives to be an industry leader in dealing with fake ads and candidate CVs which do unfortunately occur on all online employment marketplaces globally.

"Some negative examples can be found on any online employment marketplace but the assertions made in the report are greatly exaggerated and misleading."

Seek also points out how the Blue Orca report makes "no attempt" to reconcile its assertions with Zhaopin's ongoing cashflow generation which resulted in a net cash position of $222 million at 30 June 2020 (an increase of $44 million year on year).

"We believe the goal of the Report is to use speculative assertions to generate adverse publicity and then draw Seek into a public debate, which is consistent with the usual practice of short-seller firms," says Seek.

"The fullness of Seek's market disclosures ensures that market participants have a great deal of information against which to assess the merit, or lack thereof, of claims such as those in the Report."

Seek also addressed a number of accounting matters raised by Blue Orca specifically allegations from the short seller that Seek was inflating its profits by "dubious" non-cash gains and "questionable" set up transactions relating to its MaiMai business in China.

"We strongly disagree with the report's assertions in relation to Seek's accounting practices," says Seek.

"In relation to Seek's fair value gains pertaining to MaiMai and Online Education Services, these items were clearly understood by market participants as being one-off in nature.

"Seek has a track record of generating strong operating cash flows. As context, in the last three years, Seek's net cash inflows from operating activities totalled $1,070 million compared to dividends paid of $397 million and capitalised product and development costs of $309 million."

CEO Bassat says he remains confident about Seek's long-term prospects, with the company still positioned for growth.

"We accept that market participants have different opinions, however this report is littered with inaccuracies," says Bassat.

"We are well positioned for future growth and remain confident in Seek's long-term outlook."

Shares in Seek are down 5.16 per cent to $20.40 per share at 10.44am AEDT.

Blue Orca issues rebuttal

Blue Orca has wasted no time in issuing a rebuttal to Seek's post-trading halt response.

The US-based short seller is sticking to its message, reiterating its position that Seek is "inundated with zombie resumes and fake job postings".

"Seek issued a flimsy, 2-page response to our Report in which it failed to meaningfully address any of the substantive evidence of fake posts and zombie resumes raised in our Report," says Blue Orca.

"Seek even admitted in its Response that it did "not wish to engage in detail" with our allegation. Why not? Because we are right."

The short seller reports Zhaopin has removed 64 of the 66 employers on its platforms Blue Orca identified as "likely fake" in its initial report, which the US-based firm says is "clear validation of our work".

"Recall that in the markets we sampled, these employers accounted for almost 20 per cent of the posts on these platforms, making it a significant admission of rot on Zhaopin," says Blue Orca.

"In our opinion, Seek refuses to engage with our Report because our evidence is compelling.

"But investors deserve a straight answer, not a Company which is trying to sweep under the rug a discussion which would obviously undermine the market's confidence in its critical Chinese platform."

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