The New York Times Deal Book blog includes a note about Patrick Byrne's relationship with his father, John "Jack" Byrne, including their disagreement over Patrick's efforts to encourage reform in the stock market over short selling. As you know, Patrick is the CEO of Overstock.com Inc.(Nasdaq: OSTK) and his father sits as the Chairman. The senior Byrne is a billionaire who made his name by turning around Geico in the 1970s.
Patrick himself describes his efforts as a "jihad" to reform Wall Street, which he calls a "cesspool of greed and corruption." His focus is on the practice of short-selling, which he points out is inadequately regulated. He's even sued some hedge funds.
The article notes that Jack Byrne has discussed resigning from the board in order to avoid additional stress on the father-son relationship, coming out of his desire to have Patrick dial-back the rhetoric.
While short sellers play an important role in the operation of an efficient market, a person with a short position in a stock, finds himself in the position of wanting the stock to fall, creating an ethical problem. And while it may be reasonable to seek to hope to profit from the "inevitable market correction" when a stock appears overpriced, I am concerned about organized and individual efforts among short sellers to drive a stock price down.
It is certainly reasonable for a CEO that finds his company the target of short selling to seek to call regulatory attention to the problem. Some might suggest that the alternative would be irresponsible.
Of late, I've learned that those who know Patrick best, think most highly of him. Those that know him only by listening to an occasional conference call may underestimate him. I tell you what, I wouldn't bet against him.
The best way for Patrick to teach the shorts a lesson will be to deliver results that catapult the stock forcing the shorts to buy the stock to cover their positions.
You should remember that while I am an investment banker, this blog is intended for educational purposes and should never be treated as investment advice, an offer to sell or a solicitation of an offer to purchase any security.
You're right -I wouldn't bet against Patrick here. He has overcome far worse in the past. That said, i think he needs to focus much more on the core business and leave the NSS jihad to someone else. Either that or turn over the daily operations to someone else so he can pursue the NSS issue (would hate to see this). If OSTK cuts back sales growth to 15-20%, maintains gross margins, and reduces marketing to 4-5% of sales they are at B/E. The leverage of their operating model becomes apparent as they pull back from hyper-growth mode.
Posted by: Bconnery | March 22, 2006 10:21 PM | Permalink to Comment