Fyffes share fall was not due to dotcom reverse

A surge in the Fyffes share price in early 2000 was influenced principally by investor enthusiasm for the fruit company's involvement in an internet business venture, a US expert on "insider dealing" agreed at the High Court yesterday.

However, Prof Daniel Fischel disagreed that the mainly institutional investors who bought a €106 million stake in Fyffes from DCC in February 2000 would not have been unduly concerned had they been aware of a poor trading performance by Fyffes in the months from November 1999 to January 2000 that left Fyffes €7.3 million behind its targets.

It would have been "shocking" were the investors not concerned, he said.

Fyffes claims that the information about its poor trading performance was known to DCC and that company's chief executive, Mr Jim Flavin, in late January 2000, and constituted price-sensitive information at the time of the sales of Fyffes' shares in February 2000. It claims, in proceedings against DCC, Mr Flavin and two DCC subsidiaries, that the sales breached "insider dealing" provisions of the Companies Act 1990. The defendants deny the claims.

On the 24th day of the action yesterday, Mr Michael Ashe SC, for DCC, said his side was contending that Prof Fischel had reached his conclusions on the basis of inaccurate financial information regarding Fyffes.

He put to Prof Fischel several propositions based on a hypothesis that the market was aware of the alleged price-sensitive information in early February 2000.

Counsel suggested that the available public information was of adverse euro/dollar currency fluctuations, over-production in the banana market, the fact that the first quarter of the fiscal year was traditionally a weak quarter for banana producers, and Fyffes' statement in December 1999 that it expected further growth in 2000 and that its results for 2000 would be second half-year weighted.

Given that the market knew those public matters, he suggested that the alleged price-sensitive information made available to the defence in late January 2000 via November management accounts and a summary December trading report, which included a forecast for Fyffes performance in January 2000, would not have radically altered the market's view of Fyffes' prospects for 2000, and would not have materially affected its share price.

Prof Fischel, called as an expert witness for Fyffes, disagreed.

He said the private information, which showed that Fyffes had experienced a shortfall of €7.3 million in the first quarter of 2000 as against the prior year's performance, made it less likely that Fyffes would achieve its half-year and full-year targets.

He said this was shown by the market's very negative reaction to the disclosure of that private information in Fyffes' profit warning of March 20th, 2000.

He added that there was more negative information available to the defendants in the alleged price-sensitive documents than was contained in the profit warning.

It was his view that the information would have had a negative effect on Fyffes' share price had it been disclosed at the time of the share sales on February 3rd, 8th and 14th, 2000.

He said the Fyffes statement of December 14th, 1999, anticipating further growth in 2000, made the information available to the defendants more, not less, price sensitive.

Mr Ashe said the Fyffes share price surged from around €2 in late December 1999 to a peak of €4 in late February 2000. At the time of the three share deals on February 3rd, 6th and 14th, 2000, it was at €3.20, €3.60 and €3.90. The price began to decline from March 2000.

Prof Fischel agreed that at the time of the share deals, the driver of the Fyffes stock price rise was the dotcom aspect of Fyffes' business.

However, he disagreed that falling interest in dotcom stock caused the price to decline on March 20th.

He believed that the decline in the Fyffes price on March 20th was due to Fyffes' profit warning that day.

The decline, he believed, would have been larger had Fyffes not announced on the same day that it was seeking to invest a further €100 million in its dotcom venture, a move seen as positive by the market.

Following the conclusion of Prof Fischel's cross-examination, Mr Michael Cush SC, also for DCC, resumed his cross-examination of Fyffes chairman Mr Carl McCann.

Mr Cush suggested to Mr McCann that a huge issue at the heart of exchanges with Mr Flavin in 1998 - concerning DCC's wish to take further shares in Fyffes (via a scrip dividend rather than a cash dividend) - related to Fyffes seeking to ensure that any disposal of DCC shares would need the permission of Fyffes' chairman.

Mr McCann said the issue regarding the scrip dividend related to a potential acquisition by DCC of Fyffes shares, not a sale.

Mr McCann said he had asked in 1995 whether it was conceivable that DCC could dispose of an investment of £70 million in Fyffes without Mr Flavin, as DCC chief executive, being "deeply involved" in the sale process.

The case continues today before Ms Justice Laffoy.