DCC defence rests on 'blinkered' market

DCC has to persuade the High Court that the stock market was "so blinkered" about dotcom stocks in early 2000 that it would have ignored negative trading information about Fyffes if it is to successfully refute claims of insider dealing, the court was told yesterday.

Paul Sreenan SC, for Fyffes, argued such a thesis was against the weight of the evidence in the proceedings brought by the fruit distributor against DCC which have arisen from the controversial €106 million share sales in February 2000.

It was Fyffes' case that, while the market was reacting positively in early 2000 to Fyffes' planned e-commerce venture, worldoffruit.com, the market would still have reacted to confidential trading information about Fyffes for the first two months of the financial year 2000 (beginning November 1999), which showed Fyffes was €14 million down on the same period the previous year, he said.

This information would have been news to the market, which at the time expected Fyffes to report growth for the year of between 10-15 per cent, Mr Sreenan said.

Nor would the market have needed Fyffes' management to interpret the figures in the information because the numbers "were so alarming that they spoke for themselves".

He said DCC argued that the market at the time was suffering from rampant dotcom mania and actually would have ignored the confidential trading information about Fyffes which was available in January 2000 to DCC chief executive Jim Flavin in his capacity as a non-executive director of Fyffes.

The information was contained in trading reports for November and December 1999, which included a trading forecast for January 2000.

Mr Sreenan said Mr Flavin himself had not treated the trading information as irrelevant when he went to DCC's compliance officer Michael Scholefield for clearance under compliance procedures in relation to DCC dealing in the shares.

Trading information was the central matter under discussion between Mr Flavin, Mr Scholefield and DCC's solicitor Alvin Price in the context of potential price sensitivity.

In a later memo of July 2000, Mr Flavin identified three factors as influencing the Fyffes share price in February 2000, counsel said.

These were worldoffruit.com, bananas and produce. It was agreed worldoffruit.com was the dominant influence on the share price at the time but Mr Flavin, significantly, did not say bananas or trading were actually irrelevant.

Mr Sreenan contended it would be a mistake to treat Fyffes' stock in early 2000 as a pure dotcom stock.

All of the evidence, except perhaps the evidence of one expert witness called by DCC, supported the argument that Fyffes was a type of hybrid, a core trading company which had an interesting dotcom element to it, he said.

While the Fyffes share price had moved from €2 in January 2000 to a peak of €4 in March 2000, the earnings didn't alter while that movement was happening, counsel said.

The only thing which did alter was the p/e - the multiples of earnings.

Fyffes stock was put on a higher multiple of earnings because the market was pricing into the value of the stock the prospect of future earnings from worldoffruit.com.

At the time of the first share sale on February 3rd 2000, some companies which were not representative of a company like Fyffes were being valued at huge p/e ratios in excess of 140, Mr Sreenan said.

However, that was not the way the market was looking at Fyffes, an old/new-world company. Fyffes on that date had a p/e of about 16 and a share price of €3.20.

This showed the market had not lost all reason about Fyffes. While the market was optimistic about the prospects for worldoffruit.com, it was not the case that trading information had lost all relevance.

Mr Sreenan argued "the fundamental problem" for the defendants was that, if there was such dotcom enthusiasm on February 3rd that the market would have ignored negative trading information about Fyffes, the same dotcom enthusiasm was there on March 20th when Fyffes released a profit warning, containing much the same negative trading information, to which the market reacted with a fall in the share price.

This information was "like a bucket of cold water" thrown over the market.

He was continuing legal submissions on the 79th day of proceedings by Fyffes alleging ìnsider dealing' in connection with the share sales on three dates in February 2000.

The action is against DCC, Mr Flavin and two DCC subsidiaries - S&L Investments and Lotus Green.

The defendants deny the claims and plead the share sales were properly organised by Lotus, a Dutch-registered subsidiary to which beneficial ownership of the DCC stake was transferred in 1995 to avoid capital gains tax on any subsequent sale of the shareholding.

The hearing continues today before Ms Justice Mary Laffoy.