Consumer law firm, Slater and Gordon, is swooping in to grab a piece of what’s left of the Murray Goulburn dairy business, launching a class action case on behalf of disenchanted shareholders.
The compensation claim specialist is confident of arguing in court MG’s shock profit downgrade on April 27, 2016 was the result of previously overly ambitious and optimistic earnings forecasts amid deteriorating market conditions, “rather than any factors beyond its control”.
The law firm, backed by litigation funder IMF Bentham, is seeking out investors who lost money on MG’s listed shares for the class action against the dairy co-operative and its subsidiary, MG Responsible Entity Limited.
The move follows close behind Thursday’s shareholder vote to sell the company’s assets for $1.3 billion to Canada’s Saputo Inc.
About $200 million has been set aside from the sale proceeds to cover legal claims against the co-op.
Other class action moves by investor advocates have already been initiated in the Federal Court and the Supreme Court of Australia.
What’s the claim about?
The latest class action claim assumes the big co-op’s directors and management misled shareholders and the wider share market.
It is open to current and former investors who bought shares in MG's Australian Securities Exchange-listed entity MG Unit Trust between May 29, 2015 and April 26 the following year and lost money because of they were apparently misinformed.
Slater and Gordon’s planned class action against Australia’s largest milk processor spans the 2015 initial public offering period for the unit trust which represented almost a third of the company’s value when it floated in 2015.
Moving quickly to get the claim rolling, Slater and Gordon senior associate, Andrew Paull, said registrations for unitholders wanting to join the class action would only be open until May 18.
Formal proceedings would be filed soon after, subject to sufficient interest.
“Thorough analysis of the recent Australian Competition and Consumer Commission and Australian Securities and Investment Commission inquiries into MG has strengthened our initial findings that suggest the company misled the market by forecasting profits it could never achieve in the 2015-16 financial year,” he said.
“We identified significant inconsistencies between MG’s statements to the market regarding its likely revenue and profits that year and the information available to the company’s management internally.”
MG and the MG Responsible Entity’s management have simply noted the planned legal action, and that no court proceedings had yet commenced.
Investors allegedly misled
The proposed claim will allege MG misled investors by issuing the 2015-16 profit forecast in the public disclosure statement and/or its revised forecast in February 2016.
At that time MG revised its forecast 2015-16 net profit after tax to $63m, citing historically weak dairy commodity prices.
The forecast was more than $20m less than the May 2015 pre-float forecast to shareholders and unitholders of a 2015-16 net profit after tax of $85.8m.
MG’s news only got worse.
By late April 2016 MG had downgraded its net profit after tax forecast again to between $39m and $42m.
The co-op blamed weak growth in Chinese demand for adult milk products in early April, resulting in reduced expectations for revenue, and an uncompetitively strengthened Australian dollar against the US exchange rate.
MG also cut the valuation for its milk product inventory expected to be sold in 2016-17.
The April 27 announcement was accompanied by shock news of the resignation of managing director, Gary Helou, the champion of the MG Unit Trust float and its subsequent $500m capital raising to fund a big milk processing and export expansion push.
The dairy industry was also stunned to learn chief financial officer, Brad Hingle, would leave, and the co-op was retrospectively cutting its market-leading farmgate milk price payments to suppliers for the entire financial year.
Share price fell 40pc
MG’s unit price subsequently plunged more than 40 per cent, down from $2.14 a share on April 21 to $1.26 April 27.
Slater and Gordon also argues MG entities were responsible for breaches of continuous disclosure obligations under the ASX listing rules and the Corporations Act 2001.
Mr Paull said the company should have announced the looming profit downgrade before April 27.
He said once sufficient participants joined the action, it would be funded by IMF Bentham.
Participants would not be required to pay any fees unless the class action was successful.
MG unitholders who suffered a loss as the result of acquiring MG shares can find out more about how to register at https://www.imf.com.au/mgc