A2 Milk (ASX:A2M) share price on watch after being hit with class action

The A2 Milk Company Ltd (ASX: A2M) share price will be one to watch closely on Wednesday.

This follows news that the embattled infant formula company has been hit with a class action.

A2 Milk share price on watch after class action

The A2 Milk share price could come under pressure today after Slater & Gordon Limited (ASX: SGH) revealed that it has filed a class action in the the Supreme Court of Victoria. This is on behalf of shareholders that bought A2 Milk shares between 19 August 2020 and 9 May 2021.

The law firm alleges that the infant formula company engaged in misleading or deceptive conduct in breach of the Corporations Act, and breached continuous disclosure rules when posting four guidance downgrades during the course of FY 2021.

It is because of these downgrades that the A2 Milk share price has lost 54% of its value over the last 12 months.

Slater & Gordon believes that by no later than 19 August 2020, A2 Milk was or ought to have been aware that its FY 2021 guidance and subsequent representations did not adequately take account of a number of factors which would impact the company's financial performance.

These include:

"a2's attempts to boost sales by pushing English label infant nutrition stock through the cross-border e-commerce channel with attendant price discounting consequences would necessarily negatively impact its sales in the daigou/reseller channel."

"a2's sales through the cross-border e-commerce channel would in turn be impeded by the disruption to the daigou/reseller channel and the loss of associated marketing activity to stimulate consumer demand," it added.

A2 Milk's response

This morning A2 Milk acknowledged that it has been notified that group proceedings have been filed in the Supreme Court of Victoria.

In response, the release states: "The Company considers that it has at all times complied with its disclosure obligations, denies any liability and will vigorously defend the proceedings. The Company remains confident in the underlying fundamentals of the business and growth potential."