CHICAGO (CN) - Walgreen's board and other top officials have been sued for allegedly failing to tell shareholders of an alleged multi-billion dollar profit shortfall.
In a derivative action filed in Chicago Federal Court, Walgreen shareholder Anne Cutler says company CEO Gregory Wasson, Chairman James Skinner, and 13 other corporate officers hid dire news about the pharmacy chain's performance until an August 6, 2014 announcement that caused its share price to plummet nearly 15 percent.
Walgreens operates the largest pharmacy chain in America, with 8,309 locations. Pharmacy sales have accounted for approximately 75 percent of the chain's total sales for the past three years.
In her complaint, Cutler says that with its announcement, Walgreen's board slashed its 2016 EBIT [earnings before interest & tax] goal by $2 billion, and reduced expected 2016 pharmacy earnings by $1.1 billion.
A short time later, former Walgreen CFO Wade Miquelon claimed in court that he was wrongly made the scapegoat for a "shocking" calculation error leading to the reduction.
In his defamation suit, Miquelon claims company directors were well aware that market forces would make Walgreens unable to meet its fiscal year 2016 earnings forecast, but that activist investors pressured the board not to revise the forecast.
Cutler's derivative complaint relies on Miquelon's insider information, and also points to the "skyrocket[ing]" cost of essential generic drugs, which increased as much as 600 to 1,000 percent in 2013.
"As generic drug prices continued to soar, the Company's internal EBIT forecast continued to decrease," the complaint says. "The Company's executives initially lowered EBIT forecast to $8.7 billion in July 2013, and continued to spiral downward thereafter, plummeting to an internal estimate of $7.2-7.5 billion by late May 2014."
Cutler claims the board's August 2014 disclosures erased almost 49.5 billion in market capitalization.
"Further, as a direct result of this unlawful course of conduct, the company is now the subject of numerous federal securities class action lawsuits filed in the United States District Court for the Northern District of Illinois on behalf of investors who purchased Walgreens' shares," she says.
Cutler seeks disgorgement and damages for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, as well as a shareholder vote on proposals to improve Walgreens' disclosure procedures.
She is represented by Norman Rifkind with Lasky & Rifkind in Chicago.
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