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

 

Company Results: Air NZ Rides The Tourism Boom With Record Full-Year Earnings

Air New Zealand has ridden the tourism boom and staved off increased competition to deliver the best full-year earnings in its 76-year history. More>>

ALSO:

New PGP: Sheep Milk Industry Gets $12.6M Crown Funding

The Sheep - Horizon Three programme aims to develop "a market driven, end-to-end value chain generating annual revenues of between $200 million and $700 million by 2030," according to a joint statement. More>>

ALSO:

Half Full: Fonterra Raises Forecast Milk Price

Fonterra Co-operative Group Limited today increased its 2016/17 forecast Farmgate Milk Price by 50 cents to $4.75 per kgMS. When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $5.25 to $5.35 before retentions. More>>

ALSO:

Keep Digging: Seabed Ironsands Miner TransTasman Tries Again

The first company to attempt to gain a resource consent to mine ironsands from the ocean floor in New Zealand's Exclusive Economic Zone has lodged a new application containing fresh scientific and other evidence it hopes will persuade regulators after their initial application was turned down in 2014. More>>

Wool Pulled: Duvets Sold As ‘Premium Alpaca’ Mostly Sheep’s Wool

Rotorua business Budge Collection Limited (Budge) and sole director, Sun Dong Kim, were convicted and fined a total of $71,250 in Auckland District Court after each pleading guilty to four charges of misrepresenting how much alpaca fibre was in their duvets. More>>

Reserve Bank: Labour Calls For Monetary Policy To Expand Goals

Labour's comments follow a speech today by RBNZ governor Graeme Wheeler in which Wheeler sought to answer critics who variously say he should stop lowering interest rates, lower them faster, or that inflation-targeting should no longer be the primary goal of the central bank's activities. More>>

ALSO:

BSA Extension And Sunday Morning Ads: Digital Convergence Bill Captures Online Content

Broadcasting Minister Amy Adams has today announced the Government’s plans to update the Broadcasting Act to better reflect today’s converged market... The Government considered four areas as part of its review into content regulation: classification requirements, advertising restrictions, election programming and contestable funding. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news