NCT - Tuesday, 29-Jun-99 07:52:30
This ain't no way to treat an investor
Proper disclosure has not been not upheld in CIT, Newcourt talks
By DIANE FRANCIS
The Financial Post
Something's amiss at Newcourt Credit Group Inc. and the company, regulators and stock brokers have all failed investors miserably.
The cornerstone to public stock markets is the tenet that companies must be forced to provide "full, fair and timely disclosure." This important rule has not been upheld in the case of Newcourt for some unknown reason.
The company should have been forced to disclose everything ages ago, in my opinion. Disclosures to date have been inadequate, vague and damaging to investors.
Alternatively, until Newcourt comes clean as to what's going on behind the scenes, its stock should be shut down to stop the carnage. Its stock has gone from a high of $79 to the $17-range.
It all began in March when Newcourt's rival, CIT Group Inc. of New York, made a takeover bid worth $4.19-billion (US). Both companies are in the leasing and financing business and the two would have combined to become North America's largest near-bank of its kind.
In May, CIT sent in a team of auditors as part of its due diligence to validate the price it was willing to pay to acquire Newcourt.
One of the few public statements made since the takeover announcement was the joint press release issued on June 15 by Newcourt and CIT, which made some unbelievable statements without full explanation.
It began: "As a result of CIT's review of Newcourt's lower than expected first-quarter earnings, CIT and Newcourt have initiated discussions to reassess Newcourt's earnings expectations."
Of course, such statements are not uncommon. This could mean that the two simply use disparate accounting principles. It could also mean hard-ball was being played by the U.S. buyer, the type of horse-trading that goes on between two merger prospects. Obviously, if an acquisitor can beat down the earnings of a company, it can buy more cheaply.
But the next sentence was damning.
"CIT is approaching the discussions with the belief that Newcourt's previous projections for 1999 are no longer valid. Newcourt is reserving its own judgment pending the reassessment discussions," it said.
This is an extraordinary admission by Newcourt, which jointly issued the press release. It means that an important corporation in New York that wanted to buy Newcourt does not think its earnings projections are "valid." Put another way, Newcourt is allowing a statement that its projections are invalid to remain on the public record.
That such a statement would be allowed simply to stand as is, can only be viewed as totally unjustifiable. Newcourt had to expect a collapse of its market capitalization. And what excuse could it possibly have had for invalid earnings or for not explaining the earnings situation?
Disclosure, not guesswork, is the basis of investment choices. But in the absence of any, the stock traded and people's holdings were damaged as they were left to guess. Was the earnings issue the result of: (a) a difference of opinion over accounting practices; or (b) invalid projections; or (c) incompetence among its executives; or (d) strong-arming by CIT that's totally bogus?
That was bad enough, then the same joint release went on to say:
"CIT and Newcourt also confirmed that they have amended their agreement to provide Newcourt with the flexibility to entertain alternative proposals during the reassessment period."
Does this mean the groom is no longer interested in the bride? Besides, the wording "flexibility to entertain alternative proposals" is so vague as to mean almost anything. Does it mean the deal's off or not?
Why are stock exchanges, both Toronto and New York, allowing such obscure statements to be made, thus damaging investors? Conversely, why are markets allowing silence, thus damaging investors?
The next, and only, press release on the heels of the disastrous June 15 statement came four days later, when Newcourt tersely said its chief financial officer was removed from his position and given another job. This was also unacceptable and simply added fuel to the fire melting down the stock to new, disastrous lows.
Again the market was left to guess because there was no explanation as to why the former chief financial officer was moved. Was he responsible for misstated earnings? Was he responsible for alienating CIT? Was he just a fall guy who was sidelined to take the heat off the company?
So let's get this perfectly straight. Here is all the market knows: Newcourt's takeover by CIT probably won't happen because CIT thinks Newcourt misled the market. Or maybe not.
That Newcourt has not been forced to make full, complete and timely disclosure is disgraceful.
Also, that Newcourt stock has been allowed to continue to trade with speculation and guesswork ruining its value due to the absence of full, complete and timely disclosure is equally disgraceful.
No matter what the explanation or the outcome, this is no way to run stock markets.
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