SGH (ASX) Interesting or sloppy?

Originally posted by walkingeagle ↑

Some people seem to be placing a lot of reliance on a shareholder class action getting them their money back. It is still possible the price will recover - no-one can successfully predict the future. In the event it did, those who jumped ship relying on a class action would be left punching at thin air.

There are a number of uncertainties here including:
1 Who would the action be against? The company or the directors?
2 What would the action be for? It is all very well saying the acquisition went wrong, or it should never have been made, but proving it should or would have been possible to foresee what subsequently happened (including proposed changes in legislation, changes in accounting standards and the effects of artificial shorting activity on the company's share price) would be a legal nightmare.
3 How long do people think it would all take, given that history shows these actions take years if not decades to bring to court?
4 Who is going to pay for it?

It's a real winner and you can bet the ranch on it.

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W/e - you are not familiar with the (judicially made) over compensatory law that is available to shareholders in Aus where they claim the company has failed to keep them properly informed ?

1. The claim can be against the company with the directors joined if the plaintiff wants

2. To quote Allens website: "The causes of action which form the basis for most Australian shareholder class actions are: • misleading or deceptive conduct in respect of inaccurate or incomplete statements and/or a failure to disclose or correct certain information; and • breach of a listed company’s continuous disclosure obligations. Importantly, neither of these causes of action requires proof of intent to mislead or defraud shareholders."
Obviously the shareholder must have lost out after purchasing the shares.
In the SGH case, the most obvious possible misleading conduct would be the repeatedly stated guidance of $205M EBITDAW for the 2016 financial year. For this reason it may well be that no claim actually commences before the full year results are issued in August.

3. The claims usually settle in a time frame of 3 to 5 years. There are several in recent years where the settlement is north of $100M.

4. If SGH EBITDAW for 2016 is significantly below about $160M (looking pretty likely at this stage), I think the class action for those who bought say after Sept 2015 (by which time the SGS cash flow disaster should have been apparent to management) may be a slam dunk. A huge proportion of the company's shares were traded in November. So litigation funders will be keen to be in on the profits. I think I saw a report a few weeks ago that one of the actions already had a litigation funding agreement.

Whether you agree with the law on shareholder class actions or not, it could be a significant issue in SGH's future.