Party City did not misrepresent the impact of sales of licensed merchandise from the Disney movie, “Frozen,” when the Elmsford-based company sold an initial public offering in 2015, a federal judge has ruled.
District Judge Lewis A. Kaplan dismissed on Feb. 1 the class action lawsuit against Party City Holdco Inc. in U.S. District Court in Manhattan.
Party City sells party supplies, balloons and costumes. It operates 900 stores and describes itself as the largest party goods company in North America.
In April 2015 it set an IPO price of $17, sold more than 25 million shares and netted $392.2 million.
The next day, lead plaintiff M. Erik Meinholz bought 10,000 shares at $20.20 to $20.25 per share.
Unbeknownst to investors, he claimed, Party City’s success in 2014 was due in large part to the “Frozen phenomenon.” The 2013 computer-animated musical, inspired by Hans Christian Andersen’s fairy tale, “The Snow Queen,” was a box office sensation and created tremendous demand for licensed merchandise.
The IPO was materially false or misleading, the lawsuit states, because details about the impact of “Frozen” sales were omitted in the offering documents. Only after the IPO was completed, it states, the company disclosed the “anomaly” of “Frozen” sales in 2014 and a subsequent decline in brand sales.
When the lawsuit was filed seven months after the IPO, shares in Party City had declined 31 percent to $11.80, from the $17 IPO price. It opened at $14.25 today.
Party City argued that plaintiffs read a section of the offering statement as an implied promise of sustained impressive sales growth when it was really about intellectual property rights and risks.
Both interpretations were plausible, Kaplan found, but the lawsuit contains no allegations about the total amount of sales attributed to “Frozen” in 2014 or the percentage of those sales on the total business.
“Instead, plaintiffs rely on a handful of buzzwords and a single financial metric, brand comp sales. Yet they fail to allege any connection between that metric and the company’s aggregate business.”
He ruled that no reasonable investor could have been misled by the omission of information about the success of “Frozen” merchandise before the IPO.