Embattled infant formula and baby food company Bellamy's Australia is facing a class action lawsuit from legal giant Maurice Blackburn, with two other firms also considering taking action on behalf of angry shareholders, in the wake of a $500 million rout of its share price.
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Bellamy's faces sour milk
In the wake of $500 million share drop, embattled baby formula company Bellamy's could now face a class action lawsuit from angry shareholders.
Maurice Blackburn released a statement on Wednesday confirming it was "seriously investigating a potential class action claim" against Bellamy's. According to the firm's class action principal Ben Slade, the investigation is focussed on "alleged breaches of its continuous disclosure obligations and for possibly engaging in misleading or deceptive conduct regarding its infant formula trade with China".
Maurice Blackburn has opened an online registration page on its website seeking "shareholders that have been hit by the recent shock price drop".
News of the class action comes amid mounting speculation that Bellamy's will ultimately be sold and delisted, with a number of Chinese buyers looking at the infant formula brand.
After trading as high as $16.50 this time last year, Bellamy's shares collapsed to a low of $6.80 on December 2, after the company released a shock trading update that revised its China sales downward. Bellamy's has since gone into a trading halt, followed by a week-long suspension of its shares from the ASX.
The class action follows a BusinessDay report on Saturday, which revealed that Bellamy's market share in Australia collapsed between April and October this year. The confidential Aztec data, showing supermarket and pharmacy sales, revealed that Bellamy's market share plunged from 25 per cent of the domestic infant formula sales in April to just 12 per cent by October. In dollar terms, Bellamy's went from earning one in every four dollars spent on baby formula in the country to just one in nine.
Despite the massive decline, Bellamy's failed to issue a single update to the market or investors that warned of issues that may impact the company's bottom line.
Bellamy's went into a trading halt on Monday, following publication of the story. On Wednesday, instead of coming out of a trading halt, the company asked the ASX to suspend its shares immediately, leaving its shareholders in limbo for another week.
Maurice Blackburn will focus on April and August announcements made by the company, as well as the Aztec data revealed by Fairfax Media.
"That data will be something we look at," Mr Slade said. "It has been pretty extraordinary market reaction, we saw $500m wiped off the share price. It beggars belief that a announcement that causes such market reaction is something that wasn't known at some time earlier by the company."
The suspension from the ASX leaves tens of thousands of mum and dad investors unable to sell their stock, which has plunged from as high as $16.50 about 12 months ago to just $6.68 on Friday before the stock went into a trading halt. Under ASX listing rules, a voluntary suspension means that no trading in the stock can take place and all existing buy and sell orders are automatically "purged" from trading platforms.
Bellamy's said the suspension was "necessary for the company to manage its continuous disclosure obligations while it continues with a review in order to finalise an updated announcement on the impact of trading conditions on the company's expected financial results."
Trading in Bellamy's shares ahead of its business update on December 2 has also caught the attention of the corporate watchdog. The Australian Securities and Investments Commission would not comment on Bellamy's specifically except to say that "as a matter of course it investigated unusual trading volumes ahead of material events such as profit updates."
Singapore-based analyst Lloyd Moffatt, who once quipped Bellamy's was so popular it almost sold itself has a view that the "blue sky story" for the stock is dead.
"They are either going to have to sacrifice revenue growth or margins and either of those mean less profits and that's before they've even got to the regulatory issues.
"My view is it will be bought," Mr Moffatt said.
An analyst for Religare, Mr Moffatt predicted Bellamy's was headed for trouble six months ago on the basis that the infant milk scandals in China had distorted demand for product in Australia. "Over the past five years, the birth rate in Australia has been flat at 310,000 per annum while IMF sales have tripled; we thus believe that the company's revenue growth run-rate is unlikely to sustain, going forward."
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