Court battle for The Hut and Cookson over Myprotein deal
A MULTI-MILLION pound dispute between online retailer The Hut Group and entrepreneur Oliver Cookson over the sale of his Myprotein business three years ago has reached the High Court in London.
Mr Justice Blair, the brother of former prime minister Tony Blair, is hearing the case which started last Wednesday and is expected to continue for several weeks.
The Hut, based in Northwich and one of the region’s leading technology businesses, paid £31.1m in cash for the sports nutrition brand and also gave Mr Cookson 12.7% of The Hut’s equity, taking the total value of the deal, announced in May 2011, to £58m.
Mr Cookson was to join The Hut’s board, but after nine months the company served him with a notice alleging a breach of a warranty that guaranteed Myprotein’s management accounts “fairly presented” the firm’s financial situation in the six months to March 2011.
According to court papers seen by TheBusinessDesk.com, The Hut is suing for £15m, claiming Myprotein’s earnings in the six months to March 2011 were overstated by £725,000 at £1.7m and this affected the ultimate valuation.
Mr Cookson has launched a counter claim for breach of contract worth £12.7m, and is making an allegation of deceit valued at £9m-£13m.
The contract claim relates to an alleged £5.5m overstatement of profits in The Hut’s 2010 draft accounts which his legal claim says significantly affected the value of shares in the group. The deceit allegation stems from comments made by senior managers vouching for the accuracy of the accounts.
The Hut’s claim states: “The management accounts did not fairly present the assets and liabilities and profits and losses of Cend Limited [the registered company behind Myprotein] for the relevant period”.
It added: “THG (The Hut Group) has suffered loss and damage and is entitled to and claims as damages the shortfall between the price actually paid and the true value of Cend Limited… The best estimate of the shortfall that the claimant is currently able to give is £15.7m.” Its claim is for £15m because this was the limit specified in the warranty for any future action.
Mr Cookson, who has since established a new venture called GoNutrition, denies The Hut’s central complaint that itemises various charges totalling £725,000 associated with VAT, unredeemed customer reward points, a website write-off and the method used to calculate the value of stock. In Mr Cookson’s court papers his lawyers argue the case for the inclusion of each figure in the accounts, which were audited by KPMG.
They state: “THG has failed to particularise the basis on which the “best estimate” of its loss is calculated. But, in any event, it is denied THG has suffered loss and damage in the amount alleged (£15.7m) or at all.”
Mr Cookson’s claim also details the circumstances around a significant overstatement in The Hut’s draft accounts for 2010.
According to the document, in September 2011 – four months after the Myprotein deal, auditor PwC discovered The Hut’s finance team had “falsified” documents relating to audits up to June 2011, particularly the draft accounts for 2010.
This included: stock valued at £1.6m being double counted and/or sold; £1.5m of liabilities to suppliers not disclosed to PwC; and irrecoverable debts worth £1.2m had been listed as recoverable. A further £1.1m was associated with accounting changes.
The upshot of this error was that the group had not made an operating profit, before depreciation, amortisation and exceptionals of £4m, as explained in the draft accounts, but a loss of £1.4m.
The document states: “Had the relevant THG warranties been true the total issued share capital in THG would have been worth between £228.8m and £246m as at May 31, 2011, whereas it was actually worth between £132.5m and £142.5m… the consideration shares would have been worth between £29.2m and £31.3m whereas they were actually worth between £16.9m and £18.1m.”
Mr Cookson’s co-defendant is Barclays Private Bank acting as a trustee of the Jersey-based Oliver’s Sebastian LED Trust 2011 which held class B shares in Myprotein owner, Cend Limited. DWF is acting for Mr Cookson in the dispute, while The Hut Group has instructed London-based litigation firm Quinn Emanuel.
Both parties declined to comment as a result of the ongoing case.
