The Federal Court has ruled that Myer Holdings Ltd (ASX: MYR) misled shareholders and breached its continuous disclosure requirements with statements made about its expected profit for the FY15 financial year.
Myer's share price has dipped slightly on the news, falling 1.75% to 56 cents from a previous close of 57 cents. For Myer, the saving grace of the judgement is that the judge found shareholders had not incurred a loss as a result. Myer therefore may not be liable to pay damages to the class action plaintiffs.
The claim, by a group of aggrieved shareholders, was put into motion by a 2014 Q&A session between equity analysts, financial journalists, and Myer's then CEO, Bernie Brookes. In the course of the session, Brookes represented that in his opinion, Myer's NPAT for the FY15 financial year would be higher than for the previous year. Six months later, Myer announced it expected FY15 NPAT to be between $75 million and $80 million (below FY14's 98.5 million). Immediately after this the share price fell by more than 10%.
The plaintiffs claimed that Brookes did not have reasonable grounds for making the 2014 representation and had had breached its continuous disclosure requirements by failing to correct it. The judge agreed, finding Myer engaged in misleading and deceptive conduct by failing to issue a market correction in the period after Brookes made his statement. But the judge also found that shareholders had not suffered any loss because of Myer's contraventions.
The reason there was no loss to shareholders is because the market consensus was that FY15 profits would be lower than had been forecast by Myer itself. According to the judge:
[T]his is because the market price for Myer securities at the time the contraventions occurred already factored in an NPAT well south of Mr Brookes' rosy picture painted on 11 September 2014. In other words, the hard-edged scepticism of market analysts and market markers at the time of the contraventions had already deflated Mr Brookes inflated views.
Myer's case was unusual however, as market consensus usually follows guidance provided by companies themselves.
Foolish takeaway
Myer has yet to make a statement on the case and has not ruled out an appeal. In the meantime the case sounds a note of warning for companies providing guidance that the market relies on.
