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Speculation Takes Toll on Body Shop’s Clean Image : Stocks: The company’s shares plunge following rumors about upcoming articles questioning its ethics.

ASSOCIATED PRESS

Rumors of impending bad news have become bad news for the Body Shop, whose stock has plunged nearly 10% amid speculation that its environmentally conscious image is about to suffer an attack in America.

The sale of stock in the cosmetics and toiletry chain, which markets itself as ethically and environmentally responsible, was reportedly prompted by upcoming U.S. articles that criticize the Body Shop’s ethics.

Body Shop Chairman Gordon Roddick acknowledged Wednesday that one incident mentioned in the press recently--a 30-gallon spill of Fuzzy Peach Shower Gel in New Jersey--had occurred. But he called the rest of the ruckus “nonsense being created by the zealots of cynicism.”

“They are determined to blow trivia and day-to-day events out of all proportion, and to feed a story based on rumor and innuendo,” Roddick said. The Body Shop International PLC is not perfect but is “proud of our record and proud of what we do.”

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This coverage indicates how financial markets can go wild when speculation begins feeding on itself.

The Body Shop’s trial by headline began last Friday, when the Financial Times, London’s daily business newspaper, led its Companies and Markets section with a story entitled “U.S. ethical fund turns against Body Shop.”

The story said that the ethical investment fund, Franklin Research and Development Corp., unloaded 50,000 shares of Body Shop, amid concerns that upcoming criticism of the company would hammer the stock price.

Since that story appeared, Body Shop stock plunged 9.5% from 242 pence, or $3.63 a share, to close at 219 pence, or $3.28 a share, in London on Wednesday.

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The story said Franklin Research would soon “provide a more detailed article on the company in a newsletter” and that its decision to bail out of Body Shop stock was based on information it has seen in a draft article to be published soon in the United States.

The article in question is scheduled to appear Sept. 1 in Business Ethics, a specialist magazine based in Minneapolis that insisted Wednesday it has not revealed to anyone the contents of an upcoming feature on the Body Shop.

The Body Shop’s environmental stance brings intense scrutiny from a variety of investment funds that keep tabs on the business practices of companies they invest in.

A senior vice president of Franklin Research, Patrick McVeigh, says in a letter appearing in Wednesday’s editions of the Financial Times that the newspaper was off base in suggesting his group has “turned against” the Body Shop.

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“We are independently researching a report on the Body Shop’s ethical performance, which we have not finalized, nor have we reached any conclusions,” McVeigh wrote from Boston.


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