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Scapa prepares legal action against ConvaTec

ConvaTec alleges that Scapa has breached the terms of their contract
June 3, 2019

Scapa (SCPA) will legally contest medical technology group ConvaTec’s (CTEC) decision to exit a “material” supply deal worth $30m (£23.8m) in annual revenues.

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ConvaTec informed the adhesive products specialist on Friday 31 May that it was pulling out of a five-year contract with Scapa Tapes North America, and filed an accompanying “declaratory judgement” with respect to the contract, in federal court. “Neither the company nor Scapa Tapes North America LLC accept that ConvaTec has any grounds” to terminate the deal, Scapa said, “nor to pursue its declaratory judgment claim”.

The agreement covers products provided by Scapa’s healthcare business, and still has three years to run. A ConvaTec statement said that the company quit the deal after Scapa had broken the terms of their contract.

“ConvaTec contends that Scapa’s 2018 acquisition of Systagenix, a competitor of ConvaTec, breached the agreement,” the company said. “ConvaTec has filed a complaint in the U.S. District Court of New Jersey asking for a declaratory judgement to confirm the company’s right to terminate the agreement,” it added.

Scapa acquired Systagenix Wound Management for £31m in cash in October 2018 and entered into a five-year exclusive manufacturing supply agreement with wound care company Acelity for Systagenix wound care products, which expanded upon an existing relationship between the parties.

Scapa is assessing potential profit implications and will update the market shortly. Analysts at Berenberg tentatively forecast that the contract loss will see earnings downgrades of around 20 per cent on an adjusted basis. “From our understanding a declaratory judgement does not typically implicate damages,” it added, “but simply provides legal certainty on the dispute at hand”.