Data could have shown ongoing pressure on Fyffes

Documents available to DCC prior to the sale of its Fyffes stake could have suggested that the company faced continued pressures in its most important market, the Fyffes v DCC insider dealing trial heard yesterday.

Prof SP Kothari - an expert witness on US financial markets - agreed that if an investor in Fyffes had seen allegedly price-sensitive documents available to DCC shortly before the €106 million sale of its stake in Fyffes in early 2000, they might infer that pressures in the UK banana market, the most important market for Fyffes, could continue beyond January 2000.

But Prof Kothari reiterated his view that investors and analysts could, in early 2000, have anticipated the information in the two alleged price-sensitive documents.

There was no evidence the market did not anticipate the information, he said.

He agreed that, if the information had not been anticipated by the market, it was possible it would have had a material effect on Fyffes' share price.

His position was that, given the weak prices of bananas at the time and adverse euro/dollar exchange rates, the market was anticipating a pretty bad performance for Fyffes in early 2000.

If the information in the documents was truly bad, it would be expected that Fyffes' management would have disclosed this to the market in January 2000, he said.

However, Fyffes had not done so and did, in fact, not issue a profit warning until March 20th, 2000.

In those circumstances, if Fyffes was impugning the integrity of DCC regarding the share sales, Fyffes was also impugning the integrity of its own management, he said.

Prof Kothari said he did not believe Fyffes' management had sat on significant adverse news in early 2000 and decided not to disclose it even though trades were taking place at inflated stock prices.

He believed instead that Fyffes had issued a profit warning in March 2000 because of matters concerning additional activity it was engaged in.

It was his view the market had reacted adversely to those additional matters and that caused the Fyffes stock price to fall.

He was being cross-examined on the 73rd day of proceedings by Fyffes alleging "insider dealing" in connection with the €106 million sales of the DCC stake in Fyffes over three days in February 2000 which transactions yielded a €85 million profit for DCC.

The action is against DCC, its chief executive Jim 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 Green, a Dutch-resident DCC subsidiary to which beneficial ownership of the Fyffes shareholding was transferred in 1995 for tax reasons from DCC and S&L.

In the proceedings, Fyffes has claimed two documents were made available to Mr Flavin by January 25th, 2000, which contained information that was price-sensitive.

Price-sensitive information is material that, if made public, would be likely to have a material effect on a share price.

The first of the DCC share sales occurred on February 3rd, 2000.

The alleged price-sensitive documents are the Fyffes November 1999 management accounts and the Fyffes December 1999 trading statement, the latter of which contained a trading forecast for January 2000.

The November report showed Fyffes experienced losses of €2.6 million that month, €4.1 million worse than the previous year and €2.3 million worse than budgeted for by Fyffes.

The December report showed a loss of €1.3 million that month, compared to a €3.3 million profit in December 1998.

Yesterday, Paul Sreenan SC, for Fyffes, put it to Prof Kothari, who has been called as an expert witness for DCC, that a range of analysts' reports on Fyffes during 1999 and 2000 showed that the analysts, despite referring to weaker banana prices in late 1999, had not revised downwards their forecasts for Fyffes' performance for 2000.

Prof Kothari agreed that, when he had prepared his report for the court case, dated November 2004, he had not been aware at that point of a certain number of additional analysts' reports.

He agreed one report referred to by counsel indicated Fyffes was seen by that particular analyst as sufficiently different from its competitors to enable that analyst hold their forecast for 1999.

He agreed a number of analysts had referred in their reports later in 1999 to weak banana prices but had nonetheless held their forecasts for Fyffes' performance.

He agreed various analysts had expressed surprise, after Fyffes' December 1999 results announcement, that Fyffes, despite weaker banana prices, had returned a better performance than some analysts had anticipated.

This showed analysts paid attention to weak prices, he said. He said the fact that analysts had held their forecasts despite weaker prices meant that nothing had changed.

He said the reports indicated that analysts recognised this was a banana business "and you might slip".

He agreed the market would not have had available to it the monthly budgets of a company like Fyffes and did not have access to Fyffes' budgets.

He also agreed that if the market did have access to budgets and results for three months in sequence, and to comparative information, this would be valuable information. Comparison of figures could throw up valuable information, he agreed.

Prof Kothari said he was unaware until this week that Davy and Goodbody stockbrokers were involved in organising the purchase of the DCC stake in Fyffes in February 2000 and was also unaware that Davy was broker to both DCC and Fyffes in February 2000.

He agreed he had written on the issue of whether there was bias among analysts who were affiliated to certain institutions. He said some researchers had concluded there was such bias.

The case continues today before Ms Justice Laffoy.