Class Accuses FedEx of Failing to Disclose Extent of Data Breach

(CN) – A shareholder derivative action accuses FedEx of failing to disclose the extent of the damage done by a June 2017 cyberattack against international delivery service company TNT Express, which FedEx acquired a year before.

Filed in Delaware Chancery Court against FedEx’s directors and executive officers, the lawsuit accuses the individual defendants of “breaches of fiduciary duties owed to the company, as well as their complicity in constructive fraud, corporate waste, unjust enrichment, and violations of the Securities Exchange Act of 1934, from September 19, 2017 through December 18, 2018.”

In May 2016, FedEx completed the acquisition of Netherlands-based TNT for $4.8 billion in cash, making TNT a subsidiary and FedEx’s largest acquisition to date. However, according to the lawsuit, on June 28, 2017, a press release revealed that TNT was “severely impacted” by the global cyberattack called NotPetya during a critical period of TNT’s integration into FedEx’s operations.

FedEx allegedly issued false and misleading statements assuring shareholders that TNT recovered from the cyberattack. The company, however, failed to disclose that TNT’s package volume growth was slowing as large customers took their business to competitors after the breach. In addition, TNT was experiencing an increasing shift from higher-margin parcel services to lower-margin freight services while anticipated costs and timeframe to integrate and restore the TNT network were significantly larger and longer than disclosed.

On December 18, 2018, the full extent of the damage caused by the cyberattack was made clear when FedEx announced dismal quarterly results attributed to “lower package volumes in Europe and a negative shift in TNT’s product mix to lower margin freight business following the cyberattack.” The company was forced to lower its earnings guidance and announced that the TNT Improvement Target was no longer possible. The news caused the company’s share price to drop more than 12 percent.

Plaintiff shareholder Jason Flaker is represented by Blake A. Bennett of Cooch and Taylor in Wilmington, Del.

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