FMS hit with NIS 203 million class action
The Blums didn't really know the figures, analysts suspect
With Arnon Ben Yair
FMS Enterprises Migun (TASE: FMS) and its controlling shareholder Daniel Blum were hit on Tuesday by an NIS 203 million class action motion. Blum's son, Avraham Blum, who serves as CEO of the shielding and ballistic fabrics maker, is also targeted by the plaintiffs.
The motion, which asks that a lawsuit against the company and its owner be recognized as a class action, was filed at the Tel Aviv District Court.
The suit was filed by shareholder Benjamin Gabay via attorneys Doron Deri and Nitzan Gadot.
Gabay claims that the company waited until the very last second, the end of August, to publish its second-quarter financial statement, including the executive summary describing the company's business situation.
That summary revealed that in July, FMS received a letter from its American contractor. The letter stated that bullet-proof vests that the company had provided to the American army as samples, had failed testing. Fixing the problems would take about two or three months, FMS revealed, adding that it would therefore be falling short of financial expectations.
Gabay charges that the company had been in possession of the information for a month and a half before sharing it with shareholders. But under the law, he says, it should have released an immediate announcement to the Tel Aviv Stock Exchange.
Moreover, around the time of the letter, charges Gabay, Daniel Blum sold many of his shares, for a high price, making NIS 59 million.
Publication of FMS's second-quarter results and news of the trouble with its flak jackets sent its stock into free-fall. Shares in FMS sank by 33% in a couple of days, to the chagrin of its shareholders. Gabay for one estimates the damage to the public pocket at NIS 203 million.
Defending their name
Blum & son yesterday held a conference with analysts to defend their good name. Blum senior denied knowing about the trouble with the American army project when selling his shares to Clal Insurance, and offered to cancel the deal.
The father said his good name meant more to him than mere money and he would cancel the deal, if Clal Insurance wanted it.
Most of the analysts left the meeting feeling disappointed and confused, though.
The presentation before some 50 equity analysts began with an apology from Blum. The stage of explanations was very short, says one analyst. Then began the questions, with analysts taking advantage of the occasion to try to wrest actual figures about the company, which is famously close-mouthed about its affairs.
The Q&A was marked by much consultation between father and son, and the legal counsel. Analysts couldn't help but feel that the Blum team didn't know the figures all that well, which created no small consternation. Finally the analysts were asked to send in their questions so the FMS management could sit down with the number-crunchers and answer properly.
One analyst discussed mystery surrounding a contract with Honeywell: is one about to be signed? Is it uncertain? How much is a Honeywell contract expected to increase revenues - as much as $20-30 million, or perhaps even more?
FMS seems to understand that it has to be more transparent, and that its policy of covertness did it no good at all.
"Until now, because we did not reveal details, we made phenomenal profits. Honeywell and other companies with which we work could not demand we narrow our margins.
"From now on, we will strive to share as much information as possible while keeping the names of our clients secret. We mean to form a team that will handle transparency," Blum said.
While the father seemed calm enough, the son was not. "For the last five years, from 2001, we handed out dividends of NIS 270 million cash alongside NIS 400 million in profits. During that time, the share generated returns of 600% to 700%,"said Avi Blum, evidently shaken by the market's ingratitude. "All the people complaining now made a lot of money during that time."
So a contract got delayed from August to October, Avi Blum continued. "Would every company rush to advise the stock exchange?" FMS works in a dynamic industry and after consulting with lawyers, the company felt no need to publicize the delay.
Analysts had often asked Daniel Blum before why he was constantly selling off shares. Simple, he has to repay a ten-year loan he took to buy the controlling interest in the company from his cousin in 2004, he explains.