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Scapa sues ConvaTec over supply deal

The adhesive products specialist signalled its intention to sue last month
July 11, 2019

Adhesive products specialist Scapa’s (SCPA) US subsidiary, Scapa Tapes North America, is seeking over $83.81m (£65.7m) in damages from medical technology group ConvaTec (CTEC) over a cancelled supply contract.

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Scapa signalled its intention to pursue action against ConvaTec in June, in response to the medical group’s decision to quit a five-year $30m deal to support Scapa’s healthcare business. When it terminated the contract, ConvaTec also filed an accompanying “declaratory judgement” with respect to the contract in federal court. 

ConvaTec argued that Scapa’s October 2018 acquisition of Systagenix Wound Management, a ConvaTec competitor, breached their agreement. Scapa entered into a five-year exclusive supply deal with wound care company Acelity for Systagenix wound care products, which built upon a prior relationship between the parties.

On June 3, Scapa said that “neither the company nor Scapa Tapes North America LLC accept that ConvaTec has any grounds” to terminate the deal, which still had three years to run. A week later, outgoing chief executive Heejae Chae reversed his decision to step down from his position after a decade in charge. Scapa cut its labour outgoings in a bid to mitigate the fallout from the terminated contract (Scapa reported revenues of £311.8m in its full-year to 31 March 2019, and has described the ConvaTec deal as material), and the anticipated dent to 2020 revenue and trading profit was expected to be around £28m and £13m, respectively.

Scapa is also seeking to have the complaint filed by ConvaTec dismissed. ConvaTec declined to comment on Scapa’s decision to sue.

After Scapa announced its intention to pursue action against ConvaTec on 3 June, analysts at Berenberg forecast that the contract loss will see earnings downgrades of around 20 per cent on an adjusted basis.