Treasury in shareholder firing line

Treasury Wine Estates, the world's biggest pure-play winemaker, has one more contentious issue to juggle as it searches for a new CEO and is staring down the barrel of a multimillion-dollar class action from aggrieved shareholders.

Litigation funder IMF has begun seeking a list of former and current investors in Treasury Wine Estates over allegations it engaged in "deceptive and misleading conduct" around disclosures for its troubled US business.

IMF and litigation partner Maurice Blackburn Lawyers say Treasury Wine Estates failed to live up to its disclosure obligations when it admitted in July it would have to pour as much as $35 million of unwanted and past-its-date wine in the US down the drain, with inventory problems in the US triggering a $160 million write-down.

The crux of its looming class action will be that Treasury Wine Estates knew, or should have known, as early as August 17, 2012 that large write-downs of its wine held by third-party US distributors were inevitable. The class action will seek to rope in any person or institution that purchased Treasury Wine Estates shares between August 17, 2012 and July 14, 2013.

IMF first picked up on investor disquiet in the wake of Treasury Wine Estates' July write-down and profit warning and already has at least one institutional shareholder that has signed up to fight the case. It only needs seven former or current shareholders to support its litigation plan for it to move to a class-action case.

It comes at a bad time for Treasury Wine Estates, currently being run by the board as it looks for a new CEO after the ejection last month of David Dearie, whose position at the group became increasingly wobbly after he was forced to unveil the profit warning in July.

It also faces a strengthening Australian dollar that could crimp its earnings, a continued downturn in consumer spending across local and international markets and fears of a slowdown in demand in China for luxury goods such as its premium and super-premium wines.

A Treasury Wine Estates spokesman yesterday said the company had not been served with any court documents. "Treasury Wine Estates strongly denies any allegations of wrongdoing and will defend any class action proceedings vigorously," he said.

CIMB Securities analyst Daniel Broeren said the company would have insurance to cover the cost of a class action with the financial drain on its resources likely to be immaterial. While not giving a view on the chances of IMF being successful, Mr Broeren said investors had known as far back as August 2012 that the winemaker had inventory issues in the US but that at that time the wine with distributors was still saleable.

"The argument purported by the litigators is that the company knew in August 2012 that it had inventory that was potentially impaired. Given the bulk of inventory under discussion was commercial, and typically sold within two years of production, it would be reasonable to suggest that even if wine was three years old and considered impaired in July 2013, it was technically considered saleable in August 2012."