CSL reaches price-fixing settlement
Recommendation
CSL will pay just US$64m of the US$1bn several North American hospitals had claimed in a four-year legal battle over alleged price fixing that has cost CSL more than $20m. The class action alleged that CSL conspired for seven years with its major competitor, US-listed Baxter, to fix the price of the company’s two dominant blood products – immunoglobulin and albumin.
CSL was accused of orchestrating the cartel following the rapid swings between shortage and oversupply of plasma in the late 1990’s and early 2000's. New chief executive officer, Paul Perreault, rejected the allegations but said 'to pursue the case further would have required several more years of management time and focus as well as substantial additional legal costs with no absolute certainty of the outcome.'
If approved by the federal court, the settlement will reduce CSL's net profit in 2014 by US$39m, a rounding error relative to CSL’s profit for 2013 of US$1.2bn. Management reiterated that it expects net profit to increase 7% in 2014, and with the stock up 2% since our last review on 19 Aug 13 (Hold – $64.37) we recommend you HOLD.
Note: The model Growth portfolio owns shares in CSL.