Bergen Brunswig Accused of Hyping Stock Price
Bergen Brunswig Corp., the Orange-based pharmaceutical and electronics distributor, said Wednesday that it has been sued for unspecified damages for allegedly overstating its profits and artificially inflating the value of its stock.
The class-action suit, filed earlier this month in U.S. District Court in Los Angeles, claims that the giant distribution company continued to report rising profits and to project continued success for its pharmaceutical unit from Sept. 1, 1985, to Sept. 25, 1986, because it undervalued its unsold inventory.
If the inventory had been valued correctly, the suit claims it would have resulted in lower profits, as well as lower prices for the firm’s common stock and its debentures.
Bergen Brunswig officials said the company “believes it has always made full, fair and timely disclosure” and “is of the opinion that the allegations . . . are speculative and without merit.”
The suit was filed on behalf of Myra Miller of New York, who bought $20,000 worth of the company’s debentures between December, 1985, and July, 1986.
According to the suit, buyers of stock and debentures in the period under question paid a premium because Bergen did not value its inventory according to the “last in, first out” accounting method that the company said it was using. The court papers said that if the inventory had been valued correctly, it would have resulted in lower profits for the fourth quarter of the company’s 1985 fiscal year and the first three quarters of the 1986 fiscal year. The suit claims that the company finally revealed the effects of its purchase and inventory changes late last month when it reported a fourth-quarter loss of $3.6 million.
The report caused the price of Bergen stock and debentures to plunge. In the final week of September, 1986, the stock traded in a range from $22.12 to $17, while debentures ranged from $94 to $85. In the final week of August, 1985, when the suit claims the company first started making rosy projections, the stock price ranged from $31.25 to $29.75, while debenture traded from $104.75 to $103.
The attorneys are asking the court to give an estimated 400 shareholders the difference between what they paid for the stock and debentures and the price it fell to once the company announced its fourth-quarter loss last month.
