Global logistics company Mainfreight has confirmed it intends make a legal claim against the former owner of the underperforming European-based Wim Bosman Group, which it purchased more than two years ago for more than $200 million.
At the heart of the matter, is Mainfreight's allegation that Wim Bosman did not disclose during pre-purchase due diligence that a distribution contract with global cycle manufacturer Giant was coming to an end.
Due in part to the European funding crisis and recession, Wim Bosman had performed well below analysts' expectations for Mainfreight, repeatedly dragging down its overall financial results during the past 18 months.
Mainfreight bought Netherlands-based Wim Bosman and its 14 branches in six European countries in early 2011 for 110 million (at the time $NZ205 million) and later retained a $17 million earn-out payment because of underperformance.
Mainfreight's chief financial officer, Tim Williams, was contacted yesterday and said there had been three losses of ''key logistics accounts'', the most significant being Giant.
''[The possible claim] is for loss of customers to us, not notified before acquisition ... during due diligence,'' Mr Williams said.
''In particular, Giant was a large loss to us,'' he said.
Mr Williams rejected media reports yesterday that the loss of some Wim Bosman customers in Europe had not been disclosed to the stock exchange as required.
''Those [European] customer losses have been fully reflected in Mainfreight's announced financial results for the years ended March 2012 and March 2013,'' Mr Williams said.
He highlighted Mainfreight had informed Wim Bosman's former owner that it intended ''to bring a claim'', but had not initiated court proceedings and could go to arbitration, as required under the purchase agreement.
Craigs Investment Partners broker Peter McIntyre said while Wim Bosman had ''ticked the boxes'' for Mainfreight's 2011 expansion into Europe, ''its timing was out'' with the looming European financial crisis and ''it probably paid too much''.
As with operations in the United States and Australia, which had similarly taken time to ''bed in'' but were now performing well, Mr McIntyre cautioned it ''could be years, not months'', before Mainfreight's European operations were performing to expectations.
Despite the Wim Bosman effects, Craigs had recently re-rated Mainfreight stock from ''hold'' to buy'', increasing its 12-month target price to $11.23.
Mainfreight shares rose from a low of $9.20 last August to peak at $12.15 in early February, then had since recovered from $9.68 in May to trade up yesterday 1%, at $10.72.
Forsyth Barr broker Peter Young said based on Mainfreight's performance expanding into Australia and the US, investors should expect the same level of ''relentless effort'' by its executive team to make ''incrementally operating improvements at Wim Bosman''.
''Mainfreight still regards Wim Bosman as being a good strategic fit for its global network, but the timing of when this will become evident through earnings has been pushed out by two to three years,'' Mr Young said.
He said following the acquisition, the loss of several customers did have a material impact on Wim Bosman's earnings performance, due to delays in replacing customers, and new pricing, but also because of the deterioration in European economies.
- Some of the allegations arise from a book on Mainfreight's history Ready Fire Aim, by Keith Davies, due for release in mid-August. The book claims Mainfreight is seeking $NZ18 million in damages, The New Zealand Herald has reported, but Mr Williams yesterday said the book was incorrect.
