how is those telstra share price, page-4

telstra faces class suit Telstra faces class suit
Michael West and Michael Sainsbury
December 19, 2005

AGGRIEVED Telstra shareholders are preparing a class action for damages against the telco for its alleged failure to disclose a big drop in future earnings that later resulted in its share price tumbling.

The action is planned for the Federal Court in the new year, according to consultant Joanne Rees, acting for legal firm Slater & Gordon. It will cover investor share market losses incurred after August 11.

That day, Telstra CEO Sol Trujillo and finance chief John Stanhope presented the annual financial result to the market at a briefing attended by market analysts and the media.

Later that day, Mr Trujillo and chairman Donald McGauchie met the Prime Minister and senior ministers to brief them on Telstra's outlook using a document titled The Path Forward.

Telstra's stock closed at $5 on August 10, the day before results were issued. It fell 18c on August 11, the day the results were released to market.

Shares fell a further 24c between August 11 -- when analysts received information that the Australian Securities & Investments Commission found the rest of the market did not, around the time of the government briefing -- and September 7, when Telstra issued an earnings downgrade. That day, it lost a further 24c to close at $4.34.

Last week, ASIC issued a warning to Telstra which it characterised as a "yellow card".

In its statement, ASIC said: "Also of concern was a briefing to analysts following the release of Telstra's annual results on 11 August, 2005. It is clear that some information given during that briefing was not available in Telstra's ASX announcements, either before or after the briefing."

Despite ASIC's criticism, Telstra said it did not breach its disclosure obligations, while ASIC made clear it did not intend to take any enforcement action over the issue.

There were widespread downgrades of Telstra's 12-month target share price by market analysts in the days following the results briefing.

Ms Rees said the action being prepared against Telstra was for non-disclosure of a material change in difference in earnings under section 674 (2) of the Corporations Act. Telstra also allegedly contravened ASX listing rule 3.1.

"The people who have contacted us have been extremely angry that the Government had received confidential information which was not available -- and should have been available -- to the market," she said.

"They thought they were buying off the bottom of the cycle, and if they had known what the Government had known, the price (of Telstra shares) would have been a lot lower. What we are trying to establish is at what point the board and management knew about the deteriorating outlook."

According to ASIC, a senior Telstra executive -- communications chief Phil Burgess -- gave parts of the briefing to members of the press.

ASIC said: "The briefing was intended only for certain members of parliament and their staff. The selective release of that document to others created speculation about its contents until Telstra released the full document on 7 September, 2005."

While ASIC stopped short of instituting court proceedings against Telstra, ASIC chairman Jeff Lucy said: "We found a set of practices which cannot be regarded as acceptable for a corporation of the size and significance of Telstra to the Australian market. I have written to the board of Telstra summarising ASIC's findings and outlining our concerns to serve as a warning to the board and senior management to lift their game on continuous disclosure."

In response to ASIC's statement last week, Telstra company secretary Douglas Gration said: "Telstra was always confident that its conduct was consistent with our continuous disclosure obligations.

"Telstra has a strong record of compliance with the law in relation to its continuous disclosure practices. Telstra rejects any suggestion that its continuous disclosure policies and practices are inadequate or that there is potential risk of future non-compliance."

Telstra spokesman Rod Bruem said yesterday: "If I had a dollar for every time Slater & Gordon has threatened a class action against Telstra, I would be a wealthy man.

"In relation to the federal Government, Telstra has certain duties and protections under the Telstra Corporation Act."