MONTREAL - Shares of Gildan Inc. (TSX:GIL) have fallen more than 10 per cent since it was accused of failing to warn investors of production problems, but liability insurance will help prevent class-action lawsuits from taking a bite out of its financial results, an industry analyst said Tuesday.

A German institutional investor launched a $500-million class-action lawsuit in Ontario court last month and the company's legal woes continued to mount after a similar suit was filed last week in the United States.

But Sara O'Brien of RBC Capital Markets said a consolidated class action suit in the United States could take up to two years for discovery before it is resolved.

Gildan's directors also have a $75-million liability insurance policy with a $500,000 deductible for each proxy, O'Brien wrote in a note to clients.

"We expect Gildan's directors and officers liability insurance would suffice to cover any litigation costs or potential settlement related to these class action filings, and thus ultimately we do not expect any material financial impact on Gildan's results," she wrote.

Gildan shares have fallen 12.3 per cent since June 16 when the Ontario case was filed. On the TSX, Gildan shares closed up 23 cents to $25.14 in trading Tuesday.

O'Brien said the share price weakness related to legal issues is overdone given the company's fundamentals. Her target price is $36.

In April, Gildan warned of lower second-quarter earnings growth prompted by a production shortfall due to problems at its Dominican Republic textile facility.

The shares fell sharply on the news.

O'Brien expects Gildan will reiterate during its third-quarter results on Aug. 12 that manufacturing issues in the Dominican Republic and retail issues are being fixed and that the growth outlook for fiscal 2009 is on track.

In a statement of claim filed in Ontario Superior Court, investor Metzler Investment GMBH claims to have lost around $900,000 after problems at the plant caused shares to plummet by 31 per cent.

Metzler alleged that Gildan CEO Glenn Chamandy and a holding company in his name made US$95.2 million selling shares between Aug. 9 and Dec. 5, 2007.

Chief financial and administrative officer Laurence Sellyn allegedly earned C$802,827 selling shares Dec. 20 and 21.

None of the allegations has been proven in court.

LIKE IT?  LET OTHERS KNOW

Thanks for participating!

Be the first to recommend - Sign in now


See what other people are recommending - Popular Stories