August 2, 2012 / 3:25 PM / 6 years ago

UPDATE 1-Investors seek compensation from Douwe Egberts owner

By Sara Webb and Ivana Sekularac

AMSTERDAM, Aug 2 (Reuters) - Dutch shareholders will seek compensation from the owner of coffee brand Douwe Egberts after it issued a profit warning citing fraud, tax and inventory 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 also include Senseo coffee pods and machines and Pickwick tea, 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 well-publicised listing on July 9.

On Wednesday, D.E.Master Blenders said it had found accounting irregularities when it closed its books for the financial year ended June 30, warning that results would be hit by a combination of fraud, tax and inventory problems at its Brazilian unit and that financial statements from 2009 onwards would have to be restated.

D.E Master Blenders shares fell more than 7 percent to hit an intraday low of 8.725 euros on Thursday, below the opening price of 9.79 euros when trading officially began on July 9. It was trading at 8.99 euros at 1519 GMT, off 5.5 percent.

“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.

D.E Master Blenders expected many U.S. investors who did not 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.

At the time of the listing, Chief Financial Officer Michel Cup said 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.

When Cup, the CFO, was asked on an analysts’ conference call who would be liable in the event of any legal claims, he replied “D.E Master Blenders”. But he said it was too early to comment on any possible claims for compensation, adding “we will review and see what is needed and what can be done.”

Asked about the timing of the disclosures so soon after the listing, he said the company was investigating why the irregularities had not been discovered earlier.

Affiliates of investor group JAB - majority owner of U.S. cosmetics firm Coty Inc, which sells perfumes under the Calvin Klein, Davidoff and Chloe brands - own 12.19 percent of the Dutch company, having bought shares at the end of June and early July in the unofficial, or grey, market, JAB spokeswoman Elke Neujahr said.

“At the moment we want to stay a minor shareholder. We have no plans to sell shares,” she told Reuters on Thursday.

EMBARRASSMENT

The disclosures are 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 year ending 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, adding that adjustments are expected to reduce shareholders’ equity by about 85-95 million euros.

It said the adjustments occurred in Brazil, which accounts for a fifth of group revenue, and were due to provisions on inventory levels, additional tax provisions, and accounting irregularities involving uncollectible accounts receivable and incorrect sales recognition.

“People booked sales which were not sales or people booked discounts or did not book discounts,” a spokesman for the company told Reuters.

D.E Master Blenders appointed a new chief financial officer for its Brazilian business in June, he said, after the previous CFO left the company.

“It was a normal procedure that we appointed a new CFO at that moment,” he said.

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