Organic food distributor SunOpta Inc. has finally freed itself from a web of class-action lawsuits that has distracted it for the past 18 months by negotiating a $11.25-million (U.S.) settlement of the claims.
The company, a huge producer, packager and distributor of natural and organic foods with annual revenue of over $1-billion, was caught up in the suits early in 2008.
SunOpta revealed early last year that it was going to take a big writedown because of overvalued inventory in its berry warehouses, and another provision because of a legal dispute in its ethanol business. Outside consultants were called in, and financial results from 2007 were eventually restated.
The stock, which had traded at over $14 (Canadian) in the fall of 2007, fell to the $6 range.
That brought class-action lawyers out of the woodwork, and more than a half-dozen complaints were filed in Canada and the United States. They alleged that chief executive officer Steve Bromley and other executives and directors made false and misleading statements about the health of the company and overstated profit, when they knew, or should have known, about the problems in the berry division.
But now the company, based in a farmhouse just outside of Toronto, has settled a consolidated U.S. action, and another parallel case in Canada. It admitted no wrongdoing, but agreed to formalize, in writing, some of the corporate governance policies of its audit committees.
Shareholders who owned stock between Feb. 23, 2007, and Jan 27, 2008, and who lost money on their shares, will split what remains of the $11.25-million (U.S.), once legal fees of about 25 per cent and other costs are taken out of the settlement fund.
Still, the payments should make up "a substantial portion of the damages that were suffered," said Michael Robb, a lawyer with Siskinds LLP in London, Ont., who represented the plaintiffs in the Ontario suit.
He said about 100 institutional shareholders and several thousand retail stockholders should be eligible to get payments.
The deal still needs approval of courts in Ontario and New York.
Analysts were enthusiastic about the agreement, saying it removes a long-standing distraction and allows the company to focus on running its business.
Robert Gibson, an analyst at Octagon Capital, upgraded his rating on SunOpta to "buy" yesterday because of the settlement.
"It has taken management's time, legal fees, the whole nine yards," he said. "It is good [to have it over]."
Peter Prattas of investment firm Fraser Mackenzie said the company can now concentrate on boosting its profit. While sales growth has been strong - in 2008 it passed the $1-billion revenue mark for the first time - profit has been weak. The company lost money in 2008, and again in the first quarter of 2009.
It squeezed out $1.8-million in profit in the most recent quarter. "The company has proved in the second-quarter results that they have turned the operations around," Mr. Prattas said.
Now, the settlement deal should eliminate "a significant risk that some investors were cautious about," he said.
It was a relief to see that the settlement payments were completely covered by SunOpta's insurer so there will be no hit to earnings, he added.
SunOpta shares, which hit a low of just over $1 (Canadian) in the depths of the recession this past March, have climbed back above $4.
They should go higher, Mr. Prattas said, if the company can succeed in boosting profit.
SunOpta
(SOY-TSX)
Yesterday's close $4.14, up 1 cent
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