AMSTERDAM Aug 2 Dutch shareholders will seek compensation from the owner of coffee brand Douwe Egberts after it issued a profit warning citing fraud and tax problems in Brazil, just three weeks after listing on the Amsterdam stock market.
The Dutch Association of Shareholders (VEB), which mainly represents individual investors, on Thursday said it will demand redress from coffee company D.E Master Blenders 1753, its former parent Hillshire Brands, and two advisors.
D.E Master Blenders - whose brands include Senseo coffee pods and machines and Pickwick tea as well as Douwe Egberts - is the third-largest player in the global coffee market after U.S.-based Kraft Foods Inc and Swiss market leader Nestle SA.
It was spun off by U.S. group Sara Lee, now known as Hillshire Brands, in a highly publicised listing on July 9.
But on Wednesday evening, D.E Master Blenders said it had discovered accounting irregularities when it closed its books for the financial year ended June 30, and warned that results would be hit by fraud, tax and inventory problems at its Brazilian operations.
Past financial statements, from 2009 onwards, will have to be restated, it added.
Shares in D.E Master Blenders fell more than 7 percent to hit an intraday low of 8.725 euros on Thursday - below the opening price of 9.79 euros on the first day off official trade on July 9.
"It shows how much investors are concerned," said ING analyst Marco Gulpers.
In the spin-off, Sara Lee shareholders received one share in D.E Master Blenders for every Sara Lee share they already held.
But D.E Master Blenders expected many U.S. investors who didn't want exposure to the European coffee company to sell their shares, and published a 236-page prospectus, dated June 1, giving information to potential buyers.
Chief financial officer Michel Cup said at the time of the listing that he expected the stock to attract a good mix of European investors, particularly British and Dutch individuals, given their familiarity with the Douwe Egberts brand.
Jan Maarten Slagter, a director of VEB, said on Thursday the association would demand compensation for investors from listing bank ABN AMRO and auditors PricewaterhouseCoopers as well as Hillshire and D.E Master Blenders.
"The listing prospectus was based on inaccurate information. So shareholders who bought shares did so based on inaccurate information," Slagter told Reuters.
"We are sending letters to the four parties, holding them liable and inviting them to a meeting to discuss compensation for shareholders."
ABN AMRO declined to comment. PricewaterhouseCoopers was not immediately available to comment.
Affiliates of investor group JAB - majority owner of U.S. cosmetics group Coty Inc, which sells perfumes under the Calvin Klein, Davidoff and Chloe brands - has a 12.19 percent stake in the Dutch coffee company.
JAB spokeswoman Elke Neujahr said the shares were bought at the end of June and early July when there was an unofficial, or grey, market.
"At the moment we want to stay a minor shareholder. We have no plans to sell shares," she told Reuters on Thursday.
The disclosures are very embarrassing for the Dutch company which listed in Amsterdam with considerable fanfare.
Prime Minister Mark Rutte attended the listing ceremony at the stock exchange while full-page advertisements in the local press heralded the return "home" of a cherished Dutch brand which, like many other Dutch names, had been bought up by overseas investors.
D.E Master Blenders said on Wednesday it had identified adjustments in its accounts for fiscal years 2009-2012 and that these would reduce its net result for the fiscal year ended on June 30, 2012 by about 45 million to 55 million euros.
Roughly half of that is expected to be accounted for within operating profit, it said.
"These adjustments, which all involve the company's Brazilian operations, are partly caused by accounting irregularities involving uncollectible accounts receivable and incorrect sales recognition," it said.
"In addition, the company has taken provisions on inventory levels and made other corrections, including additional tax provisions."
The Dutch firm said it was investigating the accounting irregularities and would take steps to improve internal controls over financial reporting and governance procedures at its Brazilian operations.