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Neptune hit with shareholders' rights lawsuit

By Hank Schultz , 21-Dec-2012
Last updated on 21-Dec-2012 at 08:59 GMT

Neptune Technologies and Bioressources has been hit with a shareholder rights lawsuit over the Nov. 8 explosion and fire that destroyed the company’s production facility and a resulting steep decline in the company’s share price.

Shareholder rights law firm Robbin Geller Rudman & Dowd LLP filed the lawsuit in the United States District Court for the Southern District of New York on behalf of anyone who purchased Neptune stock between Dec.12, 2011 and Nov. 8, 2012.

The fire devastated the company’s krill oil production plant in Sherbrooke, Quebec, killing 3 and injuring 18.  The ignition of the solvent acetone (used in the company’s krill oil extraction process) stored at the site was a major contributing cause to the severity of the fire.  In addition to devastating the original portion of the company’s production facility, the fire consumed all of Neptune’s raw material inventory.

False, misleading statements alleged

The company has announced a recovery plan that aims to restart production in Sherbrooke using an expansion facility that was almost complete at the time of the fire. Neptune has also said it intends to form  relationships with third party manufacturers in the meantime to supply customer needs.

A statement from the law firm alleges that Neptune officials, “issued materially false and misleading statements regarding the Company’s operational status and financial projections.”

It further alleges the following:

(a)    Neptune had “dangerously high” levels of acetone at the Sherbooke plant and the the levels exceeded the company's permit from the Québec Ministry of Environment.

(b)    The company failed to obtain a permit to expand the facility.

(c)    Neptune was “chasing market share at the cost of margins and would see profit margins collapse by the end of the class period.”

Trading in Neptune’s shares was suspended on the Toronto and NASDAQ exchanges following the fire and resumed Nov. 26.  The shares on the NASDAQ plunged from $3.31 a share to $2.50 on the first day of trading.  The share price has declined since, closing at $2.02 on Dec.  19. The 52-week high for Neptune shares was $4.90 on July 2, 2012.

Neptune:  Suit is without merit

Neptune responded in statement saying that it believes the suit is without merit, and that it believes it has a solid legal defense. The company said that it has demonstrated already that the levels of acetone stored at the Sherbrooke plant, whether indoors or outside, did not exceed the levels permitted by the Québec Ministry of Environment.  Further, it stated had obtained the required construction permits for its plant expansion and was in the process of obtaining the required environmental permit for the expansion.

As to the market share vs. margin issue, Neptune's chief financial officer Andre Godin called it a misinterpretation of events.

"The market is growing so drastically and the demand is booming.  And the demand for our product exceeded supply just before the incident.  We are not chasing market share; we have more market than we can support," Godin told NutraIngredients-USA. Godin said the company was in discussions with some key customers whose demands could not be fulfilled to offer some discounts to mollify them until the company's expansion plant came on line.  It was not, he said, an attempt to buy market share by slashing margins.

The environment ministry did send a notice alleging environmental non-compliance to Neptune on Nov. 16, but the company said at the time and reiterated in its statement yesterday that the notice pertained to specific equipment acquisitions in the plant expansion and did not have to do with acetone levels.

"You see these kinds of suits in the US by the hundreds almost every single day.  If you look at what they are trying to demonstrate it’s all old news and all has been retracted or corrected," Godin said.

Godin said the real news is where Neptune goes from here.  He said company officials are confident their plan to restart krill oil production will ultimately be successful.

"Neptune is really focusing on executing its plan to restart Sherbrooke. We have an action plan that is very aggressive and we are extremely satisfied with progress so far," he said.