IF there is nothing better than a major shareholder class action law firm to take out the trash, today’s move by Maurice Blackburn to pursue a potential class against waste management company, Transpacific Industries Group Limited, could be worth watching.
The class action revolves around claims the company failed to disclose material information to the market regarding its earnings and forecasts in 2008.
Maurice Blackburn has joined by with litigation funders IMF to pursue the case on behalf of shareholders who bought shares in Transpacific Industries Group (TPI) between 28 February 2008 and 16 February2009.
The firm’s NSW principal, Ben Slade, said today that IMF planned to fund claims that certain current and former TPI investors have against the company for damages relating to alleged misleading and deceptive conduct, as well as breaches of the company’s continuous disclosure obligations.
Maurice Blackburn said in a release today that over the period of 2005-2008, Brisbane-based TPI grew exponentially by its merger with a string of Australian and New Zealand waste management businesses.
TPI’s key message to the market during this period was that the company would deliver sustainable, increased future earnings and profit through organic growth and growth through acquisition, the law firm said.
In February 2008 TPI confirmed previous forecasts that its FY08 Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) for the full financial year in 2008 was $545m to $560m and Net Profit after Tax was $175m to $180m.
In August 2008, TPI delivered the 2008 end year results, which largely achieved these forecasts.
In August to November 2008 TPI forecast double-digit EBITDA growth for the 2009 financial year.
At the company’s general meeting on 6 November 2008, TPI confirmed previous forecasts, stated that the business was “near recession proof” and there was no need to raise capital and stated that impairment of acquired assets would be unlikely.
But three months later TPI’s announcements turned around radically. It said its financial performance for the 2009 financial year was expected to be adversely affected by weaker commodity prices and foreign exchange rates.
It also said there would be a $46m write-down in the value of its investments in listed securities in the first half of 2009, and that the company’s capital structure was being reviewed.
By the close of trade on 16 February 2009, over $300m had been wiped from the company’s value, after a share price fall from $2.90 to $1.80. The company then went into a five month trading halt from 17 February 2009 to 20 July 2009.
On 27 February 2009, during the trading halt, TPI announceda further $69.3m loss from hedging instruments, as well as a net loss for thefirst half of 2009 of $52.6m.
The company also announced at this point that it wasin breach of its banking covenants as at 31 December 2008 such that all itsdebt facilities were current, and that there was a net current asset deficiencyof $2,057m.
Finally, it said its auditors had qualified itsaccounts to state that there was material uncertainty as to whether TPI wouldcontinue.
When trading resumed in TPI’s shares, its share pricedeclined by a further 30 per cent from its closing price on 16 February 2009 of $1.80 to $1.26.
“It was only in July 2009, through the Ernst & Young due diligence on TPI on behalf of Warburg Pincus, that the market became aware that TPI had included $48m of irregular items in the FY08 EBITDA, thereby providing a misleading impression of the company’s ongoing profitability,” Slade said.
“TPI was making robust predictions of growth and profit and claiming that the company was ‘near recession proof’ throughout 2008 in the midst of the global financial crisis.
“The reality was quite different and this was belatedly disclosed to the market between February 2009 and July 2009, causing substantial losses to shareholders,” Slade said.
“Australian listed companies are required to make timely disclose to the market of information that could materially affect price. We believe that TPI has failed in its responsibility to provide this information to the market,” said Slade.