(CN) – Online mailing and shipping company Stamps.com Inc. faces a derivative action after it terminated a partnership with the United States Postal Service, decimating a majority portion of the company’s earnings.
Stamps.com’s shipping partnership with USPS made up 87 percent of its business according to the federal complaint filed in California’s Central District by shareholder Michael Rado. Despite the partnership’s end, Stamps.com claimed it was financially strong and planned to “fully embrace partnerships with other carriers.”
News of the USPS partnership termination sent Stamps.com’s down 58 percent to $83.65 per share on Feb. 22, 2019. Further revelations revealed it was the USPS that terminated the contract because of “increasing demands and abuse of the reseller program,” the 23-page complaint states. From its 52 week high of $285.74 per share, Stamps.com now trades close to its 52 week low of just more than $34 a share.
The company sells postal services by shipping mail and packages using postage at discounted rates, and Rado claims the company thrives on a “reseller program,” that costs the USPS roughly $235 million per year. But the lawsuit says the model is unsustainable and the reseller program made Stamps.com’s financial statements “misleading.”
Meanwhile, Stamps.com initiated a repurchase program to buy back $90 million in stock, which was signed off on by CEO Kenneth McBride and other senior executives, according to the complaint, and which omitted key information surrounding the repurchase plan.
Shareholders are represented by Robert Prongay, Lesley Portnoy, Pavithra Rajesh, Matthew Houston, and Benjamin Sachs-Michaels of Glancy, Prongay & Murray LLP in New York and Los Angeles.