Rogers, Shaw Communications Propped Up Terayon, Suit Alleges
Daaalink - did you see this news today? Ouch sounds much like what we were saying eh? Hope you and the Bush lover aren't still long this pig...
quote.bloomberg.com
Rogers, Shaw Communications Propped Up Terayon, Suit Alleges By Boyd Erman
Toronto, Sept. 22 (Bloomberg) -- Rogers Communications Inc. and Shaw Communications Inc., Canada's two largest cable companies, bought some equipment from a supplier in which they owned stakes to inflate the value of their holdings, according to allegations in court documents filed yesterday in California.
The papers also allege that Shaw and Rogers kept quiet the existence of a letter that could have caused the stock of the supplier, Terayon Communication Systems Inc., to plummet.
Terayon and some of its senior officers, directors and insiders are named as defendants in the suit, while Rogers and Shaw are not. The class-action complaint was originally filed in U.S. District Court for the Northern District of California on June 1.
Terayon, based in Santa Clara, California, makes cable modems. Rogers and Shaw bought the modems, which they resold to customers wanting cable access to the Internet, the suit says. Rogers and Shaw were Terayon's biggest customers, the suit says.
During the period covered by the suit -- Nov. 15, 1999, to April 11, 2000 -- Shaw was Terayon's biggest shareholder with a 10.5 percent stake, while Toronto-based Rogers had a 6.5 percent stake, the suit says. Both companies had representatives on Terayon's board, the suit says.
Collateral
The documents allege that Shaw bought at least some of the modems to protect the value of its stake in Terayon because the shareholding serves as collateral for a C$996.7 million ($668 million) bank credit line.
The suit is ``completely frivolous and without merit'' and Calgary, Alberta-based Shaw doesn't expect to be named as a defendant, said Michael D'Avella, senior vice-president of Shaw and a Terayon director. Shaw will continue to buy Terayon modems, he said. D'Avella isn't one of the directors named as a defendant.
Executives of Terayon and Rogers weren't available to comment.
The suit alleges that during the first quarter, Rogers and Shaw both bought more of Terayon's modems than they needed. Rogers bought 52,000 modems and ``installed'' 29,600, and Shaw bought 40,000 and ``installed'' 24,000, says the suit, which doesn't say where it got the figures. In the two previous quarters, both companies bought only as many as they installed, the suit says.
``Shaw and Rogers, like the rest of the industry, avoided stockpiling modems because these products undergo almost constant price erosion,'' the suit says.
On April 11, Terayon reported revenue of $59.3 million in the first quarter, the suit says.
Industry Standards
``What investors did not know was that the shipments of additional modems to Rogers and Shaw constituted at least $8 million of that revenue, an amount wholly responsible for achieving these purported record results,'' the suit says.
The other allegations against Shaw and Rogers center on the claim that Terayon has misled investors into thinking that the technology used in its modems conforms with the industry standard.
The suits says Terayon's cable modems use a system called S- CDMA, which it alleges isn't certified as ``industry standard'' by a U.S. industry group named CableLabs. Without such certification, Terayon's product is a tough sell in the U.S., the complaint says.
The suit claims that CableLabs sent a Feb. 2 letter to Terayon saying that S-CDMA hasn't been accepted as a standard and that no new standards are under consideration. The complaint says the letter also told Terayon to ``cease and desist making false and unsubstantiated claims about its products and technology.''
The suit also says CableLabs sent copies of the letter to Shaw and Rogers.
The suit says Terayon executives confirmed the existence of the letter during an April 11 conference call. The next day, the shares fell 26 percent.
The suit was filed by the U.S. law firms of Milberg Weiss Bershad Hynes & Lerach LLP, and Bernstein Liebhard & Lifshitz LLP. |
