China's Margin Debt

Hound Partners Postmortem On Getting Oprahd

Owners of Weight Watchers International Inc (NYSE: WTW) stock have been on a wild ride over the past three years. Shares in the dieting company crashed to an all-time low of around $4 in mid-2015 but have since surged to a high of nearly $69.

Weight Watchers recovery took Wall Street by surprise. In May 2015, the company was close to bankruptcy with a market capitalization of $300 million and net debt of $2 billion. The company's bonds were factoring in the worst case scenario trading at only 50% of par as it looked on track to end the year at over 8x levered.

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Then Weight Watchers found a savior in Oprah Winfrey who joined the company in October 2015 becoming a spokesperson for the group and a member of the board as well as buying 10% the company with options for another 5%. The stock ended the year at $22.8, a painful change of events for short sellers such as Hound Partners.

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Managed by Tiger Cub Jonathan Auerbach, Hound had been betting against Weight Watchers stock since before the Oprah announcement. The firm had tracked the group's demise from 2013 noting signups were declining, and despite a new management team, efforts to turn around the business weren't working. According to Hound's full-year 2017 letter to investors, a copy of which has been reviewed by ValueWalk, Hound added to its short at the beginning of 2014 when tracking data showed "weak recruitment in diet season 2014."

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