TWO years of profit downgrades and poor continuous disclosure have left Nufarm facing an imminent shareholder class action over what lawyers have described as ''blatant'' misleading and deceptive conduct.
Nufarm's management credibility has taken a beating after five consecutive profit downgrades in the past two years, punctuated by two cut-price capital raisings.
Most recently, it halved its earnings guidance in July to between $55 million and $65 million, despite reassuring investors in March it was on track to meet expectations. Shares in Nufarm have fallen 60 per cent since then, closing at $3.50 yesterday.
Ben Slade, a principal at law firm Maurice Blackburn, said Nufarm had intentionally misled the market by providing unreasonable guidance to ensure the success of its April $250 million capital raising, in actions amounting to ''egregious wrongful conduct''.
''Nufarm has fairly clearly breached its continuous disclosure requirements by making wholly misleading representations about its profit capacity,'' Mr Slade said.
Ben Phi, a senior associate at Slater & Gordon, said the earnings guidance Nufarm provided in March ''lacked a reasonable basis'' and had therefore misled the market.
Mr Slade said Nufarm would have been aware of the impact of sharp falls in glyphosate prices and tough competition provided by Chinese competitors producing low-cost generic product alternatives.
He said Nufarm had failed to update its investors despite numerous opportunities, including when competitor Elders announced a heavy downgrade of its own in June.
Both law firms said they were advanced in preparations to file respective actions, and have ''significant'' support from institutional and retail shareholders.
The action is likely to focus on whether Nufarm had intentionally misinformed investors in March to ensure the success of the April raising, as well as the smooth sale of a 20 per cent stake of the company to Sumitomo Chemical in March.
The Japanese chemicals giant paid $14 a share for its stake, structured as a tender offer to shareholders which enabled Nufarm's chief executive, Doug Rathbone, to sell $19.7 million worth of his own holdings.
Nufarm has maintained it has informed the market during the same period and that difficulty with its forecasting systems and the bias of the company's full-year results towards its final quarter result meant it could not release its profit update earlier.
Nufarm revealed on Tuesday that its net debt had ballooned to $620 million as of the end of July, 37 per cent higher than it forecast on July 14.
The blowout has put the company in breach of its second banking covenant, its debt to gearing ratio, having already been in breach of its interest cover ratio.
The company failed to mention the interest cover breach in its initial announcement on July 14, only revealing the breach after fielding a question from the media during a conference call. The company issued a ''clarification'' the next morning, and blamed the omission on an ''oversight''.
Nufarm has been forced into talks with its banks to obtain a temporary waiver from its covenants. Nufarm has appointed Deloitte and Gresham Advisory Partners to carry out a review of its business operations.
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