Vocus (ASX:VOC) is set to face down a proposed class action by law firm, Slater and Gordon, alleging that the publicly-listed telco misled shareholders over its FY17 financial guidance.
In August, Vocus revealed its preliminary, unaudited financials for the 2017 financial year, showing that the company brought in a net profit after tax (NPAT) tally that came in $152.3 million below the company’s guidance range of $160 million to $165 million.
According to the Australian telco, this downgrade was primarily due to higher than forecast net finance costs and a higher effective tax rate at 33.4 per cent.
This followed the company’s move in May to wipe off $100 million from its revenue target for the financial year ending 2017, blaming the forecast downgrade on lower than expected billings in its enterprise and wholesale business, and re-jigged terms on a number of large projects.
Now, the proposed class action, which is set to be brought by Slater and Gordon in partnership with shareholder claim management and funding-service provider, Investor Claim Partner (ICP), sees the telco’s actions come under scrutiny.
The proposed claim will be brought on behalf of hundreds and, potentially thousands, of people who purchased Vocus shares between 29 November 2016 and 2 May 2017.
Specifically, the proposed class action is set to allege that Vocus engaged in misleading and deceptive conduct because it had “no reasonable grounds for the original FY17 guidance issued in November 2016”.
The proposed class action will also allege that Vocus breached its obligations of continuous disclosure by failing to disclose that it would not achieve the FY17 guidance.
Slater and Gordon Principal Lawyer Mathew Chuk said the claim would allege that, as a result of the company’s misleading and deceptive conduct and withholding of information, Vocus’ shares traded at prices significantly above their true value during the claim period.
“Our investigations to date suggest Vocus had unreasonable expectations about the costs involved in integrating its newly acquired platforms and technology systems,” Chuk said. “The company expanded significantly since 2015 by acquiring other businesses such as Amcom and Nextgen Networks, as well as merging with M2 Group Ltd.
“When Vocus issued its FY17 guidance it stated that it expected to gain efficiencies by bringing these businesses together, but we allege this was done without proper visibility of profitability.
“We have also identified an accounting issue relating to recognition of ongoing costs associated with the execution of long term, multi-million dollar service contracts,” he said.
According to ICP chief operating officer, Simon Weeks, despite the potential issues, Vocus continued to re-iterate its original FY17 guidance.
“There appears to be evidence that Vocus was aware of most of these issues when the FY17 guidance was originally issued in November, thus misleading the market” Weeks said.
“Based on initial interest, VOC shareholders are perturbed by this, as it is yet another example of a listed company not following the listing rules that exist to protect shareholders,” he said.
"We understand that Slater & Gordon have issued a release indicating they are seeking interest in a possible class action," a Vocus spokesperson told ARN. "At all times, Vocus has complied with its continuous disclosure obligations and will continue to do so."
ICP, in partnership with Johnson Winter & Slattery, is also currently proposing a class action against Dick Smith Holdings on behalf of Dick Smith shareholders, alleging breaches of disclosure obligations and misleading and deceptive conduct.
The proposed class action against Vocus comes just weeks after two private equity firms that had been engaged in a bidding war for Vocus Group bowed out of the race for the Australian telco.
Vocus found itself at the centre of a bidding war in July, after receiving an acquisition proposal from Asian private equity firm, Affinity Equity Partners.
Just a month earlier, Kohlberg Kravis Roberts & Co (KKR) revealed plans to acquire Vocus Group, with the US-based private equity firm tabling a $2.1 billion buyout proposal.
Ultimately, Vocus told its shareholders that although the bidders indicated support for its management’s strategic plans and transformation program throughout the due diligence process, both bidders advised that they were “unable to support a transaction on terms acceptable to the board”.