GTT Communications, Inc.
- Company Name
- GTT Communications, Inc.
- Stock Symbol
- Class Period
- February 26, 2018 to July 1, 2019
- Motion Deadline
- September 28, 2019
- Eastern District of Virginia
The complaint charges GTT and certain of its officers with violations of the Securities Exchange Act of 1934. GTT provides cloud networking services to multinational companies.
Since 2015, the Company pursued growth through a roll-up strategy in which it would acquire relatively small companies through “tuck-in” acquisitions. However, in February 2018, GTT announced that it was purchasing Interoute Communications Holdings S.A. (“Interoute”), a telecommunications company that operated Europe’s largest cloud services platform, in a transformational $2.3 billion acquisition that essentially doubled GTT’s size.
The complaint alleges that during the Class Period, defendants issued a series of false and misleading statements and/or failed to disclose material adverse facts about GTT’s business and operations, and in particular the Interoute acquisition. Specifically, despite defendants’ assurances that they had conducted extensive due diligence on Interoute, that the acquisition was a natural strategic fit for GTT and the two companies “fit together almost hand in glove,” and that Interoute’s integration into the Company was “on track” and “not as complex” as many of the Company’s previous integrations, in fact, there were delays in migrating Interoute’s legacy systems and processes into GTT’s client management database system, Interoute had made a strategic shift to focus on providing cloud services that deviated from GTT’s core cloud networking business, and Interoute’s sales force was underperforming and ineffective at selling GTT’s core cloud networking services. As a result of this information being withheld from the market, the price of GTT stock was artificially inflated during the Class Period to more than $60 per share.
Investors began to learn the truth on May 8, 2019, when GTT disclosed a larger than expected loss for the first quarter of 2019, including a sequential decline in revenues. GTT blamed its poor performance on issues with the Interoute integration, including migrating legacy systems into GTT’s management database, discrepancies with Interoute’s billing systems, and an ineffective salesforce. In response to these disclosures, GTT’s stock price plummeted 17.5% on May 8, 2019, and continued to fall the following day, for a two-day decline of over 25%. In the following weeks, as GTT disclosed more challenges to the Interoute integration, analysts began reducing their price targets for the Company and downgrading the stock. Then on July 2, 2019, KeyBanc downgraded GTT, reporting that recent leadership changes were an indication that “organizational health is not great.” On this news, the price of GTT stock fell 3%, to close at $18.30 per share on July 2, 2019.