Martinrea International Inc. has responded to a lawsuit filed by former vice-chairman Nat Rea, saying that some of the concerns he raised were examined two years ago and that he appeared satisfied with the results.
The auto parts company said in a news release Monday that its board of directors met twice during the weekend to address issues Mr. Rea raised in a statement of claim filed in Ontario Superior Court last week.
A news release issued about the statement of claim sent Martinrea’s stock skidding on Friday and led three investment analysts to downgrade the company’s shares and two of those to cut their price targets.
The stock closed at $10.57 on Monday, down 3.6 per cent on the Toronto Stock Exchange.
Mr. Rea raised some of the issues in 2011 when he was still an officer and director of the Vaughan, Ont.-based company and those were examined by the chair of the audit committee of Martinrea’s board of directors, who then reported to the full board.
The news release quoted Mr. Rea as saying at the time that: “I am now content with the actions taken by the board in Suleiman Rashid’s report. I apologize for any inconvenience and let’s grow the business.”
Mr. Suleiman, a director, is one of the defendants listed in Mr. Rea’s statement of claim, which alleges that some company directors and officers breached their fiduciary duties and engaged in corrupt practices. None of the allegations have been examined or proven in court.
Mr. Rea resigned as vice-chairman in June, 2012. His statement of claim said that he filed the action on behalf of shareholders and that he may seek a special meeting of shareholders to replace the board.
Martinrea's shares tumbled 10 per cent on Friday, closing at $10.96 in Toronto after a news release announcing the suit was issued. The company makes stamped metal components and fluid systems parts and is one of Canada’s largest auto parts makers. It posted revenue of $2.3-billion in 2012 from operations in Canada, the United States and Europe.
In its statement on Monday, Martinrea said Mr. Rea raised other concerns recently in a meeting with the company’s chief executive officer, Nick Orlando. “The allegations [in Mr. Rea’s statement of claim] appear to involve payments totalling approximately $250,000 made by the company and one of its subsidiaries purportedly for the benefit of Fred Jaekel in 2002 and 2006,” the company’s release said.
Mr. Jaekel is one of the founders of Martinrea, was the company’s chief executive prior to Mr. Orlando, and is currently chief technical officer.
The allegations pertaining to Mr. Jaekel are being investigated, Martinrea added in its release. The board has retained independent legal counsel and will take appropriate actions, it added.
BMO Nesbitt Burns analyst Peter Sklar reduced his target price for Martinrea’s shares to $11.50 from $14.50 on Monday and downgraded the shares to market perform from outperform. It may take a considerable period of time before it is determined whether the allegations made in the statement of claim are true, Mr. Sklar wrote. “During this period, we believe the uncertainty will weigh on Martinrea’s valuation and are revising downward our target price and lowering our rating on the stock.”
Canaccord Genuity analyst David Tyerman reduced his rating on the stock to hold from buy, and trimmed his price target to $11.50 from $14.75. RBC Dominion Securities Inc. analyst Steve Arthur cut his rating on the stock, pointing to the uncertainty the lawsuit causes among investors, but noted that otherwise the company is performing well.
Martinrea said Monday it expects record revenue and profit in 2013 after second-quarter results that were its best quarterly results to date.