Several law firms representing shareholders have filed lawsuits in the last two days claiming Tyson Foods made false or misleading statements related to allegations the company colluded with other agribusinesses to fix chicken prices.
Tyson spokesman Caroline Ahn said the company will defend itself in court if the cases move forward.
"These types of lawsuits have, unfortunately, become common in the U.S. legal system," she said. "They get filed routinely after sudden declines in publicly reported market prices for a company's stock."
Early last month, food distributor Maplevale Farms Inc. filed an antitrust complaint in Illinois against Tyson and several other poultry producers. The lawsuit said the companies had conspired since 2008 to manipulate the price of broiler chickens.
At least eight more complaints seeking class-action status have been filed recently against Tyson and the other poultry producers, including Pilgrim's Pride Corp., Perdue Farms Inc. and Sanderson Farms Inc.
From the beginning of September to the first week of October, Tyson shares fell about 11 percent, or $8.69.
In response to the price-fixing lawsuits, an analyst at Pivotal Research downgraded Tyson shares from "hold" to "sell" early this month. The analyst, Timothy Ramey, also dropped his target price for Tyson stock from $100 per share to $40 per share.
"[The] narrative of this suit fits the fact-pattern of poultry pricing and margins over the last seven years," Ramey wrote in his explanation of Tyson's downgraded rating. "It explains why Tyson can offer [earnings per share] guidance with remarkable precision; boasting of margins at record levels well into the future. The Tyson of old did not provide guidance."
The stock price dropped $6.63, or nearly 9 percent, falling as low as $67.63, on the day that Ramey released his downgraded guidance.
Other analysts dismissed the price-fixing claims, and Tyson's share price has rebounded. The shares rose 1 cent Tuesday to close at $71.56.
"Investors should take advantage of the unsubstantiated noise," said Credit Lyonnais Securities Asia analyst Jeremy Scott in his recommendation to raise Tyson's rating. "The complaint is compelling only in its fiction and misrepresentation of the market and the facts."
Three law firms are now asking shareholders to join the suit against Tyson in response to the allegations of chicken-price fixing. The lawsuit will ask Tyson to pay damages based on the loss in stock value.
There are a number of ways for such cases to be dismissed, said Carol Goforth, a professor of law at the University of Arkansas at Fayetteville who studies corporate and commercial transactions. One of the most powerful ways to dismiss is the right of the company to appoint an independent group to determine if the suit has any merit.
"Courts generally are quite deferential to recommendations to dismiss from such committees, provided the committee is independent, becomes reasonably informed and makes a rational decision that does not give rise to any appearance of bad faith," she said.
Business on 10/19/2016