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

 

Cosmetics & Pollution: Proposal To Ban Microbeads

Cosmetic products containing microbeads will be banned under a proposal announced by the Minister for the Environment today. Marine scientists have been advocating for a ban on the microplastics, which have been found to quickly enter waterways and harm marine life. More>>

ALSO:

NIWA: 2016 New Zealand’s Warmest Year On Record

Annual temperatures were above average (0.51°C to 1.20°C above the annual average) throughout the country, with very few locations observing near average temperatures (within 0.5°C of the annual average) or lower. The year 2016 was the warmest on record for New Zealand, based on NIWA’s seven-station series which begins in 1909. More>>

ALSO:

Farewell 2016: NZ Economy Flies Through 2016's Political Curveballs

Dec. 23 (BusinessDesk) - New Zealand's economy batted away some curly political curveballs of 2016 to end the year on a high note, with its twin planks of a booming construction sector and rampant tourism soon to be joined by a resurgent dairy industry. More>>

ALSO:


NZ Economy: More Growth Than Expected In 3rd Qtr

Dec. 22 (BusinessDesk) - New Zealand's economy grew at a faster pace than expected in the September quarter as a booming construction sector continued to underpin activity, spilling over into related building services, and was bolstered by tourism and transport ... More>>

  • NZ Govt - Solid growth for NZ despite fragile world economy
  • NZ Council of Trade Unions - Government needs to ensure economy raises living standards
  • KiwiRail Goes Deisel: Cans electric trains on partially electrified North Island trunkline

    Dec. 21 (BusinessDesk) – KiwiRail, the state-owned rail and freight operator, said a small fleet of electric trains on New Zealand’s North Island would be phased out over the next two years and replaced with diesel locomotives. More>>

  • KiwiRail - KiwiRail announces fleet decision on North Island line
  • Greens - Ditching electric trains massive step backwards
  • Labour - Bill English turns ‘Think Big’ into ‘Think Backwards’
  • First Union - Train drivers condemn KiwiRail’s return to “dirty diesel”
  • NZ First - KiwiRail Going Backwards for Xmas
  • NIWA: The Year's Top Science Findings

    Since 1972 NIWA has operated a Clean Air Monitoring Station at Baring Head, near Wellington... In June, Baring Head’s carbon dioxide readings officially passed 400 parts per million (ppm), a level last reached more than three million years ago. More>>

    ALSO:

    Get More From Scoop

     
     
     
     
     
     
     
     
    Business
    Search Scoop  
     
     
    Powered by Vodafone
    NZ independent news