Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Feltex defendants knew of sales shortfall before IPO

Feltex defendants knew of sales shortfall before IPO allotment, plaintiff says

By Jonathan Underhill

Jun. 3 (BusinessDesk) - Defendants in the Feltex Carpets case knew sales were behind prospectus forecasts and should have halted the sale before shares were allotted in the failed company's 2004 initial public offering, the lawyer for plaintiff Eric Houghton said in closing submissions.

Austin Forbes QC told the High Court at Wellington that defendants who attended Feltex's so-called due diligence "bring down", or final, meeting in early June, 2004, knew or had the information available that sales were behind year-earlier levels in four of the first five months of the year, with March the only strong month. But the meeting chose instead to assess the shortfall against a 12-month period which included a predicted rebound in June.

Because 2004 forecasts were unlikely to be met, the projections for 2005 were also in doubt, Forbes said.

"The decision not to notify the shortfall to the market was misplaced," Forbes said. "The sales shortfall was a material adverse circumstance which meant that the prospectus was now misleading. ... Allotment should have been deferred."

Houghton is suing the former Feltex directors, owners and sale managers in a representative action on behalf of 3,639 former shareholders who say they were misled by the prospectus. He bought 11,755 Feltex shares at $1.70 apiece, or $20,000, in the IPO, drawn to an investment that offered a gross annual dividend yield of 9.6 percent. All up, vendor Credit Suisse First Boston Asian Merchant Partners raised $193 million, selling 113.5 million shares, and Feltex raised a further $50 million to repay bondholders.

Within a year the stock was virtually worthless, thanks to a series of warnings that the company would miss its prospectus forecasts, and receivers were appointed in September 2006. Australian carpet maker Godfrey Hirst ended up buying the assets.

"The downgrade and collapse contrast starkly with the picture painted in the combined prospectus and investment statement of 5 May 2004," Forbes told the court. He outlined nine circumstances or risks that were known, or ought to have been known, by the defendants before the IPO but weren't disclosed or were inadequately disclosed in the prospectus.

They included declining sales revenue and volumes, 2004 forecasts and 2005 projections that weren't achievable, use of forward dating to meet revenue targets, increased competition from Godfrey Hirst and the prospect of increased rivalry from imported product as tariffs fell.

Despite Feltex having lost market share for six straight years, the prospectus projected a volume increase for 2005 of 5.1 percent, which Forbes said was "an extraordinary contrast," and a 1 percent increase in market share. The board and due diligence committee "should have held especial concern about the ability of Feltex to grow market share, given its sixth consecutive loss in that regard," he said in his closing submissions.

The long-running case has seen lawyers for both sides bring in expert witnesses, with the plaintiff's including Greg Meredith, head of Ferrier Hodgson Forensics in Melbourne, while Rob Cameron, the founder of Wellington investment bank Cameron Partners and former chairman of the politically bi-partisan Capital Markets Development Taskforce was an expert witness for Feltex's former directors, Credit Suisse Private Equity and Credit Suisse First Boston Asian Merchant Partners, the first three defendants.

First NZ Capital and Forsyth Barr, which managed the IPO, are fourth and fifth defendants in the suit.

The case before Justice Robert Dobson is continuing.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Tax: GST Threshold For Online Purchases Won't Lower Before 2018

The government wants to lower the threshold on online purchases which qualify for GST from mid-2018, but says more work is needed and there will be no change without public consultation. More>>

ALSO:

North Canterbury: Government Extends Drought Classification

The government has extended a drought classification for the eastern South Island until the end of the year, meaning the area will have officially been in drought for almost two years, the longest period for such a category. More>>

ALSO:

Negotiations Fail: Christchurch Convention Centre Build To Proceed Without PCNZ

After protracted negotiations, the government has ditched the construction consortium it picked to build Christchurch's replacement convention centre, which it now anticipates delivering at least two years behind the original schedule. More>>

ALSO:

Ruataniwha: Greenpeace Launches Legal Challenge Against $1b Dam Plan

Greenpeace NZ is launching a legal challenge against a controversial plan to build a dam that’s set to cost close to $1 billion and will pollute a region’s rivers. More>>

ALSO:

Inequality: Top 10% Of Housholds Have Half Of Total Net Worth

The average New Zealand household was worth $289,000 in the year to June 2015, Statistics New Zealand said today. However wealth was not evenly distributed, with the top 10 percent accounting for around half of total wealth. In contrast, the bottom 40 percent held 3 percent of total wealth. More>>

ALSO:

What Winter? Temperature Records Set For June 20-22

The days around the winter soltice produced a number of notably warm tempertaures. More>>

Conservation Deal: New Kākāpō Recovery Partnership Welcomed

Conservation Minister Maggie Barry says the new kakapo recovery partnership between DOC and Meridian Energy is great news for efforts to save one of New Zealand’s most beloved birds. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news