Lexmark logo
A class action lawsuit filed in July in U.S. District Court in the Southern District of New York against Lexmark International alleges that the company “made false and misleading statements regarding its end-user demand, channel inventory and growth prospects for its high-margin supplies business.”
The lawsuit was filed on behalf of the Oklahoma Pension and Retirement System by the New York-based law firm of Labaton Sucharow.
The lawsuit alleges that between August 1, 2014, and July 20, 2015, Lexmark violated provisions of the Exchange Act by issuing statements pertaining to profitability and growth prospects for its high-margin supplies business that were materially false and misleading. Specifically, the lawsuit asserts that Lexmark failed to disclose that end-user demand and growth for the supplies business was deteriorating, that pricing increases were the primary driver of supplies revenue growth, and not end-user demand. The complaint further purports that customers in the supplies channel were buying ahead in reaction to anticipated price increases, which resulted in excessive inventory levels at its European wholesale distributors.
The lawsuit alleges that this information was revealed when Lexmark reported its results on July 21, 2015, for the second quarter ending June 30, 2015, and lowered its 2015 sales guidance. The price of Lexmark shares dropped $9.57 per share, or 20.2 percent, to close at $37.75 per share on July 21, 2015.
Lexmark was subsequently purchased the following year by a group of investors headed by China-based Apex Technology and PAG Asian Capital. Lexmark officials said the agreement was an “all-cash transaction valued at approximately $3.6 billion, or $40.50 per share,” and Paul Rooke was replaced as CEO by David Reeder.
In addition to Lexmark, the lawsuit also names multiple former senior executives as defendants, including Paul Rooke, who served as chairman and CEO; David Reeder, who served as VP and CFO; Gary Stromquist, who served as interim CFO; and Martin Canning, who served as executive vice president and president of Lexmark’s Imaging Solutions and Services.
The lawsuit requests a trial by jury and seeks compensatory damages for the plaintiff and all other class members, which includes individuals and entities who purchased or acquired Lexmark securities between August 1, 2014, and July 20, 2015.