Fyffes lawyers discuss 'price-sensitive' question

Lawyers for Fyffes have begun closing legal submissions in the long-running action by the fruit distributor alleging insider dealing in connection with the €106 million sale of the DCC stake in Fyffes in February 2000.

There are essentially two core issues in the case:

Whether DCC and/or its chief executive Jim Flavin "dealt" in the shares at the time of the share sales on three dates in February 2000;

If there was "dealing" in the shares, whether Mr Flavin was in possession of "price-sensitive" information at the time of those deals.

In submissions yesterday, Paul Sreenan SC, for Fyffes, focused on the second issue. He said the legal definition of price-sensitive information was information not generally available which, if it were generally available, was likely to have a material effect on a company's share price.

He said it was common case between the parties that the information in question (contained in two documents - Fyffes' November 1999 management accounts and its December 1999 trading report, the latter including a forecast for January) was not generally available in early 2000. The information was highly confidential, contained specific figures on trading performance and was available only to directors of Fyffes.

While DCC did not dispute that the information was not generally available, counsel said, it argued it was not likely to have a material effect on the price of Fyffes' shares as the market was aware in early 2000 of weak banana prices and adverse euro/dollar exchange rates.

Mr Sreenan said the question was whether, if this information was placed into a market which was expecting growth, it would be likely to materially affect the price of Fyffes shares. He said the market and analysts had reacted well to Fyffes' interim results announcement of December 14th, 1999. The results bucked the trend of other banana companies at that time and the market had expected Fyffes to increase profits in the financial year 2000.

However, the information in the November and December documents showed Fyffes, in the first quarter of the financial year 2000 (beginning November 1999), was some €14 million behind the same period the prior year.

In order for Fyffes to achieve the expectations of the market and analysts for the financial year 2000, it would have had to achieve profits of some €91 million in the last nine months of the financial year 2000, he said.

This was in circumstances where Fyffes' profits for the last nine months of the financial year 1999 were some €71.8 million, meaning the company would have had to make an extra €20 million in the last nine months of 2000 from a position where it was starting with a loss in the first quarter. The losses sustained in the first quarter of 1999 left Fyffes with a steep hill to climb and the market, had it seen the information available to Mr Flavin, was bound to infer this could not be done, Mr Sreenan said. It did not take a very sophisticated analyst to see the company was not going to be able to do it.

Fyffes was also contending its profit-warning of March 20th, 2000 was "an important piece of forensic evidence" in the case because, Fyffes argued, the information in that statement was essentially the same as in the November and December documents. When that warning was issued on March 20th, it led to a fall in the share price. The defendants had "not got to grips" with that fact.

Yesterday was the 78th day of the action by Fyffes against DCC, Mr Flavin and two DCC subsidiaries - S&L Investments and Lotus Green.

The defendants have denied insider dealing in connection with the share sales of February 2000, which realised an €85 million profit for DCC, and have pleaded the sales were properly organised by Lotus Green. The latter is a Dutch-registered subsidiary to which beneficial ownership of the Fyffes stake was transferred in 1995 by DCC and S&L to avoid payment of capital gains tax on any subsequent sale of the shareholding.

The hearing continues today before Ms Justice Mary Laffoy.