(CN) – A shareholder class action alleges Hewlett Packard misled investors when it joined its enterprise services business segment with Computer Science Corporation Inc. to form DXC Technology Company.
Hewlett Packard, the class claims, initiated the merger to provide technology consulting for business applications, and the deal generated more 140 million shares of DXC common stock with former Computer Science investors receiving a one-for-one share of DXC.
But shareholders claim offering materials omitted key information, citing Hewlett Packard’s claim that the merger would generate more than $7 billion in “increased goodwill.”
“The Offering Materials further highlighted the purported ‘increased scale’ of the combined company, representing that the ‘strategic combination of the two complementary businesses will create one of the world’s largest pure-playIT services companies, uniquely positioned to lead clients on their digital transformations, with the new company expected to have annual revenues of $26 billion and more than 5,000 clients in 70 countries,” the complaint states.
Hewlett Packard, however. allegedly downplayed the cost reduction of a “turnaround plan” and “workforce optimization” which, according to shareholders, “imposed arbitrary quotas that resulted in the termination of tens of thousands of workers, selectively timed to artiﬁcially inﬂate reported earnings over the short term and present misleadingly inﬂated quarterly and yearly ﬁnancial reports to boost the stock price ahead of insider sales.”
When the omissions came to light, newly issued DXC shares lost nearly 50 percent of their market value to trade below $31 per share after previously been valued at roughly $59 per share, according to the complaint.
The class action was filed in California Superior Court by lead plaintiff Jason McLees and seeks damages and disgorgement for misrepresentation. Shareholders are represented by David W. Hall of Hedin Hall LLP, Daniel C. Girard and Adam E. Polk of Girard Sharp LLP, and Eric H. Gibbs and David Stein of Gibbs Law Group LLP.