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Allen-Vanguard faces class action
Barry Critchley, Financial Post
Published: Wednesday, October 14, 2009
An $80-million class-action lawsuit has been filed against Ottawa-based Allen-Vanguard Corp. by London-based Siskinds LLP. The so-called notice of action also names a number of Allen-Vanguard's current and former officers and directors.
The class action, filed in the Ontario Superior Court of Justice but not yet certified, seeks a "declaration that the defendants misrepresented the true financial condition of Allen-Vanguard Corp. in the period between Aug. 3, 2007, and Sept. 12, 2009."
The earlier data relates to the day Allen-Vanguard announced the purchase of Med-Eng Systems Inc. for $600-million with another $50-million set aside for the purchase of excess working capital. "Med-Eng is clearly an exceptional strategic fit with Allen-Vanguard and meets our other stated acquisition criteria of scale, geographic balance, and strong growth and earnings visibility," said David Luxton, Allen-Vanguard's chief executive at the time of the announcement.
"We are pleased to have been able to structure the financing for this major transaction with an ultimate combination of one half debt and one half new equity in Allen-Vanguard," he added. About six weeks later, Allen-Vanguard closed a $300-million equity financing with each of the 31.58 million shares being sold for $9.50 a share. At the time of the closing, Allen-Vanguard was a $1-billion company.
The class period ends on Sept. 12, the same day Allen-Vanguard announced a transaction with Versa Capital Management, a private-equity firm. "The deal provides no consideration for the shareholders," said Allen-Vanguard when announcing that transaction.
Over the next few weeks a detailed statement of claim will be filed. The suit alleges Allen-Vanguard overpaid by "at least $250-million" to purchase Med-Eng and that "the defendants did not conduct proper due diligence in advance of the transaction and turned a blind eye to the grossly excessive consideration being paid by Allen-Vanguard for Med-Eng. "
The suit further alleges that "because Allen-Vanguard has materially overpaid for Med-Eng, it was forced to take writedowns during the class period amounting to in excess of $516.3-million."
Because Allen-Vanguard "failed to take the writedowns in a timely fashion ... the shares of Allen-Vanguard were materially overvalued throughout the class period and the plaintiff [Claude Laneville] and the class members paid an excessive price for the Allen-Vanguard securities that they purchased during the class period," the lawsuit alleges.
Aside from alleging "secondary market liability," the suit also takes aim at prospectus liability, under the Ontario Securities Act. The suit alleges the company filed two prospectuses over the class period -- the first on Sept. 21 2007 (for $300-million of equity) and the second on Feb. 10, 2009 (for a $14.1-million rights offering) -- both of which "failed, however, to make full true and plain disclosure of all material facts related to such shares [being offered] in that it failed to disclose the matters complained of herein."
The suit also alleges oppressive conduct under the Business Corporations Act.
None of the claims have been proven in court. Calls to Allen-Vanguard seeking comment weren't returned.
bcritchley@nationalpost.com |
