Baelish Shares Drop Despite Best Earnings Ever Shares in Baelish Inns Inc. fell more than 20 percent today, after the company issued a fourth-quarter outlook that disappointed investors. Despite the company reporting late yesterday its highest quarterly earnings ever, as well as a nearly 30 percent increase in quarterly revenue, shares closed at $58.13 today, down $18.32 or 24%. The nation-wide operator of taverns and inns reported late yesterday that third- quarter net income would be $4.9 million, or 16 cents a share, compared to a net loss of $1.8 million, or 22 cents a share in the previous year. The results confirm the company's best-ever quarter in its 30-year history. Third-quarter revenues were $31 million, nearly three times the $8.1 million reported for the year-ago period and a 29 percent increase over the $24.1 million reported in second quarter. However, the company said that stellar growth rate will not continue in the fourth quarter because of the number of deals that closed ahead of schedule late in the third quarter. In addition, market analyst Eddard Stark announced that, "Winter is coming." advising that the severe cold weather forecast for the upcoming quarter will have a detrimental effect on travel and tourism. In a separate announcement, Baelish said it won a contract to supply nation-wide accommodations to employees of Tyrell Corporation, one of the largest agricultural and food suppliers in the country. The financial details of the contract were not disclosed. Trading was heavy in the wake of the announcements. More than 11 million shares were exchanged, nearly six times the average daily volume. (Heavily modified from an article by Larry M. Edwards that appeared in San Diego Business on October 29, 2004) REQUIRED: a) b) Was the market's reaction to Baelish's announcements consistent with efficient securities markets theory? Why or why not? (2 Marks) Explain four (4) factors that may have affected the reaction of investors to Baelish's announcement of its fourth quarter outlook. (6 Marks)