Spectrum Brands Holdings is facing a shareholder lawsuit that claims leaders of the Middleton consumer products company deliberately misled the public about problems related to two new distribution centers, and by doing so, artificially inflated the company’s stock price.
When officials came clean about the difficulties, Spectrum Brands stock took a dive, the lawsuit says. It calls on the company to compensate stockholders for the loss in the value of their shares.
“This is a meritless claim, and Spectrum Brands will defend against it vigorously,” Spectrum Brands spokesman David Prichard said Friday.
The class-action lawsuit, filed in U.S. District Court in Madison on Thursday, names Earl Wagner as plaintiff “on behalf of all investors who purchased or otherwise acquired Spectrum securities between June 14, 2016, and April 25, 2018.”
It claims then-CEO Andreas Rouvé and chief financial officer Douglas Martin downplayed glitches with the construction and operation of a huge, $33 million distribution center in Dayton, Ohio, that was intended to consolidate operations of the ArmorAll and STP auto care division, as well as problems with a new distribution center in Kansas for the hardware and home improvement division.
As Spectrum Brands’ profits slid during the first two fiscal quarters of 2017, Rouvé said the consolidations were progressing “on track” and would help reduce expenses and inventory.
But that was not true, the lawsuit says. Both centers were having operational bugs that the company did not acknowledge until July 2017, when Rouvé admitted to “temporary, transitional challenges ... that affected shipping levels in the short-term and impacted sales by approximately $24 million.”
In the following six months, Rouvé continued to tout major progress in the consolidation efforts.
But in April 2018, Spectrum Brands admitted that operations at the two facilities had some serious hitches.
“Facility-wide disruptions” had “hampered distribution capabilities materially in March” at the Kansas center, and the Dayton auto care center “struggled at higher production levels in March which led to significant inefficiencies and shipping challenges.” As a result, about $30 million worth of orders could not be shipped, said David Maura, newly named CEO, replacing Rouvé — who, the company said, had resigned.
After the news was released, Spectrum Brands stock — which already had dropped from more than $120 a share in April and May 2017 — fell from a closing price of $94.23 a share on April 25, 2018, to a close at $75.01 a share on April 26, 2018 — a 20 percent slide.
The lawsuit contends Spectrum Brands, Rouvé and Martin “engaged in a scheme to deceive the market and a course of conduct that artificially inflated the company’s stock price and operated as a fraud or deceit on acquirers of the company’s common stock.”
Spectrum Brands stock has continued to fall and closed Friday at $55.58 a share.
The company sold its auto care division and its Rayovac battery and lighting division to Energizer Holdings in January, for $2.9 billion in cash and 5.3 million shares of Energizer stock, using $2.2 billion of the proceeds to pay down its $4.8 billion in debt.
The lawsuit, filed by the Halling & Cayo law firm in Milwaukee and the Levi & Korsinsky firm in Washington, D.C., seeks an undetermined amount of damages and asks for a jury trial.