Telstra shareholder class action folds

Stuart Corner
Monday, 12 November 2007 10:12

IT Industry - Deals

A class action launched by law firm Slater & Gordon on behalf of Telstra shareholders accusing the company of failing to disclose information to the market has collapsed with the law firm, which had been claiming $300 million, seeking court approval for a $5 million settlement. Telstra, which has agreed to the proposal, said this would be divided between up to 30,000 eligible shareholders, and would cover some of the legal costs of the claimants. Telstra's group general counsel, Will Irving, said that Telstra had been approached with a settlement proposal after it provided its evidence to Slater & Gordon. "We are very confident about our legal position but frankly, it will be less expensive and time consuming to settle the case than run it...This action should have never been commenced, because Telstra had at all times kept its shareholders properly informed."

The action stem from a series of events in late 2005. Shortly after Sol Trujillo took over as CEO, Telstra delivered a briefing to senior government ministers which painted a dire picture of the state of the company and proposed building an FTTN network. Telstra forecast a drop in future earnings and revealed a, claimed, $3 billion underspend on operating and capital expenditure in the previous three to five years. Details of the briefing started to leak out and Telstra was obliged to release it to the market a month later.

The $300 million figure was arrived at by Slater & Gordon on the basis that more than one billion Telstra shares were traded in the month and that, as a result of the alleged failure to disclosure, investors who bought shares in that period paid approximately $300 million over the true market value.

Accusations of inadequate disclosure surfaced immediately and were investigated by ASIC. The regulator was not impressed with Telstra's performance but warned against court action. It concluded that Telstra's conduct "cannot be regarded as acceptable for a corporation of the size and significance of Telstra" but "fell short of being appropriate for court proceedings".