The SEEK Limited (ASX: SEK) share price fell heavily in morning trade, following the response to a short seller attack late last week.
At one point, shares in the online employment company fell to as low as $19.78, reflecting an 8% decline. However, the SEEK share price has since recovered to finish the day marginally down at $21.53, down 0.8%.
What happened?
Last week, Blue Orca Capital took aim at Seek, stating that its Chinese business, Zhaopin was operating fraudulently.
The activist investment firm reported that SEEK's subsidiary was being inundated with fake positing from deregistered, in-liquidation and abnormal companies. In addition, it was said that Zhaopin was carrying dangerous levels of debt, and has repeatability tapped capital markets to fund acquisitions.
Blue Orca backed its statements, saying it had investigated the claims. The firm said:
Companies we called about their job postings on the website even stated directly that the posts were fraudulent. Our due diligence also uncovered a whistle-blower claim by a Chinese college student alleging that Zhaopin pays people to submit fake resumes. We think Zhaopin's platform is rotten, which is devastating for Seek's prospects.
Blue Orca said that SEEK's shares were grossly misplaced and rated them at $7.20 a piece.
SEEK responds
Earlier today, SEEK responded to the report, strongly refuting the statements and allegations made in relation to its Zhaopin business. SEEK believed that the goal of the report was to use speculative judgments to generate negative publicity, which is consistent with short-seller firms.
The online employment giant advised that the report contained many inaccuracies and the claims made were very serious and unsubstantiated. The company reaffirmed that it followed disclosure obligations and was confident in its long-term outlook.
SEEK said that Zhaopin had been profitable for more than 10 years, and continued to generate strong operating cash flow. The Chinese business had a net cash position of $222 million at the end of June.
Furthermore, SEEK confessed that fake advertisements and candidate CV's was common in all online employment markets globally. It said it was a global leader in tackling this issue, and had strict processes to verify onboard customers and candidates.
The company acknowledges that while the Chinese market is highly competitive, Zhaopin leads in many, but not all key metrics.
SEEK co-founder and CEO Andrew Bassat commented on the article. He said:
We accept that market participants have different opinions, however this report is littered with inaccuracies. We are well positioned for future growth and remain confident in SEEK's long-term outlook.
The company will provide a trading update at its annual general meeting on 19 November.
SEEK share price recovery
The SEEK share price has not only recovered today, but has neared its all-time high of $24.09 achieved in January. It seems though even a negative press release cannot dampen the online employment meteoric share price rise.
It's evident that investors have disregarded the bad news from Blue Orca and see value in the $7.5 billion company. SEEK continues to recover from its 52-week low of $11.23 reached in March, representing a gain of 89%.
