Australia’s biggest wine company Treasury Wine Estates will finally put a cork in a disastrous American misstep that saw 18 million bottles of wine poured down the drain.
On Monday, Treasury settled an investor class action agreeing to pay $49 million on the same day as the trial was listed to start.
The action, run by Maurice Blackburn and litigation funder IMF Bentham, commenced three years ago in the name of shareholder Brian Jones.
The company, which recently reported a 55 per cent jump in net profit after tax to $269.1 million for fiscal 2017, told the market that the settlement came “without any admission of liability and is also subject to court approval”.
Treasury had been accused of misleading the market and of breaching continuous disclosure obligations regarding a $160 million write-down of its US operation four years ago which included the infamous $30 million destruction of surplus wine.
The lawsuit alleged that Treasury has misled its investors by releasing an unrealistic profit guidance in late 2012 that would have required a turn around in its American business despite adverse trends.
That guidance was met but only achieved by over-supplying its American distributors which resulted in an inventory bulge. That bulge had to be sold off at a discount prompting the writedown and destruction of stock including six million out-of-date bottles as 18 million bottles were tipped out.
“The settlement amount, $49 million inclusive of interest and costs, is fully insured and will have no impact on the company’s financial results,” Treasury said in a statement to the ASX.
“The agreement to settle was a commercial decision made in the best interests of TWE shareholders to enable the company to remain focused on executing against its strategy without the distraction and expense of the legal proceeding.”
Investors were not concerned by news of the settlement. In fact, Treasury shares climbed 18 cents on Friday, broke through the $14 mark and closed at $14.14, an all-time high for the company.
Treasury is the owner of some of Australia’s biggest wine brands, including Penfolds. It is also Australia’s biggest wine company and a major wine exporter.
Treasury’s full year results for fiscal 2017, released two weeks ago, revealed that its revenue from sales in Asia grew by 34.5 per cent in fiscal 2017, to $394.3 million. While revenue from sales in the Americas also grew, by 7.2 per cent, to $1.06 billion.
The company recorded total revenue for fiscal 2017 of $2.53 billion.
The global litigation funder IMF Bentham, which is headquartered in Australia, funded the class action against Treasury Wine Estates.
“If all of the conditions to settlement are satisfied, the TWE class action will be settled for an amount of $49 million. The other terms of the settlement are confidential and the agreement is subject to approval by the Federal Court of Australia,” IMF Bentham said in a statement to the ASX.
“The plaintiff may apply for a common fund order in relation to this matter. If such an application is made, IMF’s revenue will be determined by the court,” it said.
“IMF will provide further information in relation to this case, including information about its return, once the settlement becomes unconditional or if it ceases to have effect,” IMF said.