By James Atkinson

The financial risk to Treasury Wine Estates (TWE) from the class action announced this morning is very low if TWE has insurance against such proceedings, CIMB analyst Daniel Broeren has advised.

TWE today announced to the ASX that no proceedings had been served against the company at this time. 

“TWE strongly denies any allegations of wrong doing and will defend any class action proceedings vigorously,” the company said.

But in a note to investors, CIMB’s Broeren said litigation funder IMF has a very strong historical win-rate, so it is reasonable to assume they have a strong case against TWE.

“Following recent cases funded by IMF, they typically target firms that have insurance in place for such issues,” he said.

“Their approach is that insurance companies are usually pragmatic and would rather settle (if there is any any risk at all) than go to court. While I am yet to confirm that TWE has the relevant insurance, if IMF's track record is anything to go by, it is reasonable to assume it to be the case,” Broeren said.

He said TWE is in a reasonable position to defend the claim that the board must have already known about the inventory issue when it set FY13 guidance in August 2012. 

Broeren said the board will be able to highlight that – given the bulk of wine written down was 'commercial' and therefore only aged one to two years – a large proportion of it was still in-tank in August 2012 or of saleable age. 

“Overall, whether defendable or not, the financial risk to TWE is likely to be low (assuming they have insurance), however this is not something you need when trying to attract a new CEO,” he said.

Update Monday 28/10 2.48pm: TWE has confirmed it is fully insured for a class action lawsuit such as the one proposed. 

The Shout Team

The leading online news service for Australia's beer, wine, spirits and hospitality industries.

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