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Why Yum! Brands and Amazon are getting roped into the Getswift Ltd lawsuit

Fairfax media reported this morning that law firm Squire Patton Boggs has broadened its class action against Getswift Ltd (ASX: GSW) to include announcements that Getswift made about deals with Yum! Brands (parent of KFC) and Amazon late last year.

These deals implied a significant growth in the scope of Getswift’s operations, although a subsequent clarification released to the ASX showed that Getswift could not quantify the likely earnings to be derived from the deal with Amazon. Even so, given that Getswift shares approximately doubled on the Amazon deal, the class action may find this a fruitful avenue of inquiry.

Squire Patton Boggs pointed out that since less than half of Getswift’s contracts are earning revenue, it begs the question of why these contracts were even announced. We have commented on this previously here, although the class action firm also points out the seeming inconsistencies with half of all contracts not earning revenue and Getswift’s previous statement to the market:

“The company will only report executed commercial agreements. Unlike some other groups, it will not report on memorandum of understandings or letters of intent that are by their very nature not commercially binding and not a valid assurance of future commercial outcomes.”

It will be interesting to see if the class action actually approaches Yum! Brands and Amazon for clarification around their deals with Getswift. These contracts have been simultaneously relied upon by the Getswift bulls and viewed as a distinct warning sign for the bears, who criticise their lack of detail.

Overall though, it’s a sad indictment on Getswift’s conduct to think that shareholders have to rely on a class action lawsuit and a prospective ASIC investigation. The class action suit is increasingly looking like a slam dunk to me anyway, and as a result I think Getswift is likely to get hit with substantial penalties.

As a result I think Getswift is ‘worth’ substantially less than its cash backing (around 52 cents per share), and I also think it is uninvestible with the current management team. I would avoid it entirely for now.

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Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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