The U.S. attorney’s office is looking into a misdated document submitted during an accounting probe at Moore Wallace Inc., the printing company said Friday.
Moore Wallace’s disclosure of a subpoena was the latest in a series of developments that threaten to delay the company’s pending merger with Chicago’s R.R. Donnelley & Sons Co.
Questions surrounding Moore Wallace’s accounting have unnerved investors and distracted executives, who were finalizing plans for the combined company.
The merger was expected to close by March 1 following a shareholder vote Feb. 23, but the federal investigation makes that timetable less likely.
Friday’s news triggered renewed selling in both stocks as arbitrageurs adjusted their positions. Arbitrageurs aim to profit by exploiting the difference between the price at which Moore Wallace trades and what the stock would be worth if the merger closed. The deal calls for each Moore share to be swapped for 0.63 Donnelley shares.
A narrow pennies-per-share spread suggests investors are confident the deal is on track. But the spread widened by nearly 13 cents Friday despite Donnelley’s earlier assurances that it intends to complete the merger as soon as is “practicable.”
Moore Wallace closed Friday at $17.76, or 59 cents less than its $18.35 buyout price based on Donnelley’s closing price of $29.12. The spread was a narrow 10 cents per share before the trouble surfaced.
Stocks of both companies declined sharply Friday after Moore Wallace stated in a federal filing that it had received a subpoena for documents on Thursday from the U.S. attorney’s office in Connecticut, where the company’s financial operations are based.
A U.S. attorney’s spokesman in Connecticut declined to comment.
Moore Wallace said the subpoena concerned the company’s Feb. 9 disclosure that it had suspended its chief financial officer with pay because he submitted a misdated document during an audit by an outside accounting firm.
Moore Wallace’s board ordered the audit by PricewaterhouseCoopers in early January after it received an anonymous letter in late December alleging improper accounting.
Lawyers said Friday that a government investigation is not surprising given the national mood and stricter rules promulgated under Sarbanes-Oxley. The law deems it a crime to make a false entry with the intent of influencing an outcome.
“The stakes are higher after Sarbanes-Oxley, and the U.S. attorney’s offices are paying close attention to this type of situation,” said former Securities and Exchange Commission attorney Deborah Meshulam, a partner at Piper Rudnick LLP.
Still, analysts and investors are perplexed by the chain of events at Moore Wallace because there was no apparent motive for Chief Financial Officer Mark Hiltwein to have misdated a document.
PricewaterhouseCoopers’ audit was nearly complete, Moore Wallace said, and the firm had found no evidence to support the anonymous letter’s allegations. Also, the audit is not expected to result in financial restatements.
Hiltwein has been unavailable for comment. The company has said he made a mistake but did not intend to deceive the auditors.
“If the story is correct, and I don’t have any reason to believe it isn’t, there shouldn’t be any issue,” said Charles Strauzer of CJS Securities, a research firm in White Plains, N.Y.
