Lawsuits filed on behalf of Pilgrim's Pride shareholders
October 31, 2008
by FoodBusinessNews.net Staff
TYLER, TEXAS — Two lawsuits have been filed with the U.S. District Court for the Eastern District of Texas seeking class action status to represent the purchasers of Pilgrim’s Pride common stock between May 5 and Sept. 24 of this year. The lawsuits, filed by Coughlin Stoia Geller Rudman & Robbins L.L.P., San Diego, and Izard Nobel L.L.P., Hartford, Conn., both allege some company executives and directors violated federal securities laws by misrepresenting the company’s financial situation.
Specifically, both lawsuits allege that Pilgrim’s Pride executives misrepresented the company’s financial situation and concealed the impact of its capital problems related to its business. According to the complaint, defendants were aware the company’s hedges to protect it from adverse changes in costs were not working and were actually harming the company.
The lawsuits also allege that the company’s inability to continue to use workers working in the United States illegally adversely affected its margins; the company’s financial results were continuing to deteriorate rather than improve such that the company’s capital structure was threatened; the company was in a much worse position that its competitors due to its inability to raise prices to offset cost increases while its competitors were able to raise prices; and the company had not made sufficient changes to its business model to succeed in the more difficult industry conditions.
In addition to the lawsuits, Pilgrim’s Pride was blindsided by a report by the financial firm CreditSights, Inc., that said bankruptcy seemed highly probable. As a result, shares of the company’s stock declined from $1.26 at the opening of trading on Oct. 30 to 99c at the close.
On Sept. 25, Pilgrim’s Pride warned shareholders and the investment community early Thursday morning it will face a significant loss in its fiscal fourth quarter ended Sept. 27. As a result of the fourth-quarter loss, Pilgrim’s Pride said it did not expect to be in compliance with its fixed-charge coverage ratio covenant under its principle credit facilities for the fiscal year ending Sept. 27. The company did anticipate being in compliance with its covenants by Oct. 28, and said it believed it had reached agreements with the parties involved and will continue to receive liquidity under its credit facilities.
On Oct. 27, the company said it had reached another agreement with its lenders to extend the temporary waiver under its credit facilities through Nov. 26. Lenders also agreed to provide continued liquidity during the period. The company also announced that it intended to exercise a 30-day grace period in making the $25.7 million interest payment due Nov. 3, on its 7-5/8% Senior Notes and 8-3/8% Senior Subordinated Notes.