February 26, 2013

BOULDER BRANDS INC. | BDBD

We believe shares of Boulder Brands are grossly overvalued, perilously levered and poised to collapse by as much as 70%.

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We believe shares of Boulder Brands (Nasdaq: BDBD or “Boulder”) are grossly overvalued, perilously levered and poised to collapse by as much as 70%. Boulder, formerly known as Smart Balance, has had a troubled history since coming public through a reverse takeover in 2007. It has failed to extract any value from the languishing Smart Balance brand, whose key patents are due to expire in 2015 (likely to result in a steep deterioration in Boulder’s revenue and ability to service debt, and not being anticipated by the analyst community). Boulder has levered the company’s future on two acquisitions (Glutino and Udi’s) in the gluten-free product category. Boulder drastically overpaid for these low growth brands, and sold the Street on deserving a valuation closer to that of higher growth organic peers. Having shamefully misled investors, we believe the company may be orchestrating a cover-up of its financial problems by manipulating its revenue recognition through repeated changes in accounting method and disclosure language. Other red flags include 3 directors resigning in Sept 2011 following the Glutino acquisition, the abrupt resignation of its CFO shortly afterward, and the inclusion of a “clawback” provision in the event of a financial restatement. With few options remaining, management doubled down on another bad deal (Udi’s) in 2012, recently reduced its segment reporting transparency, changed its corporate name, and filed a universal shelf giving it flexibility to dilute shareholders.  We believe Boulder’s stock has an intrinsic value today of $4.00 per share, ~70% below current trading levels.

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