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Coty faces class action for alleged IPO malpractice

By Lucy Whitehouse , 25-Feb-2014

New York law firm Pomerantz has filed a class action against Coty, alleging that the beauty giant misled investors when it went public last year.

The firm claims that leading up to its IPO, Coty made false and/or misleading statements, and failed to disclose relevant adverse facts about its operations.

This alleged malpractice misinformed those who invested in the company, the lawsuit states, and the cosmetics brand could now be accountable for subsequent reduction in the value of its shares, which have fallen over 19% from the IPO price of $17.50.

Investors who have bought into the company since the 2013 IPO are being invited by Pomerantz request the lead plaintiff role for the class, which seeks to recover damages for affected shareholders.

The claim

The firm has detailed three instances where it believes Coty breached federal security laws in not disclosing information related to the IPO.

Firstly, according to the allegation, the beauty giant failed to disclose that during the quarter leading up to the IPO, consumption of Coty's products was declining and retailers were returning products to the company.

Secondly, in the months leading up to the IPO, sales growth of nail products such as Sally Hansen had materially declined to the point of flat sales, which then fell to become negative in July 2013.

Lastly, the material negative trend which arose from mass retailers not replenishing Coty inventory, or stocking less, was apparently not reported by the organization.

According to the law firm, these three factors meant that the company's Registration Statement, which stated that Coty was experiencing growth in net revenues and market share, was “materially false and misleading”.

The IPO

The IPO in June 2013 raised around $1 billion after the Reimman family, which still holds a majority stake in the business, sold 57.1 million shares at $17.50 each.

Coty looked to build its investment capital through the IPO, in order to move into emerging markets. “Coty continues to actively seek—and create—opportunities to expand into emerging markets”, the company recently told CosmeticsDesign.com, USA.

Last year’s flotation followed the brand’s unsuccessful $10.7bn bid  to buy Avon Products, with whom they have just announced a new partnership in Brazil.

This publication contacted Coty representatives for comment, who declined to comment, stating that such legal action is not unusual following a company's listing. 

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