March 28, 2003
Lucent Technologies Inc. (NYSE: LU) has moved to resolve a raft of longstanding lawsuits, in a milestone settlement reflecting the high price the company has paid for its part in the telecom boom-and-bust.
While admitting no fault, Lucent announced late yesterday that it will pay about $568 million to settle 54 separate lawsuits brought against the company and its officers as its share price collapsed in the wake of the telecom implosion (see Lucent Settles Lawsuits).
The court's final approval of the arrangement and associated red tape could take up to 18 months to resolve.
Lucent will directly pay out a total of about $420 million to various litigants and lawyers to end the multiple claims. Of that amount, about $315 million will consist of cash, stock, or both, while about $100 million will come from a company issue of warrants for the purchase of common stock. Lucent will pay up to $5 million to cover administrative costs related to the settlement. Some of Lucent's insurance carriers will kick in another $148 million to meet the total.
Through separate insurance claims, Lucent hopes to recoup up to $70 million of the $315 million it pays out.
Lucent plans to record a charge of roughly $420 million when it reports its second-quarter 2003 results, unofficially targeted for the week of April 21. The charge could take an additional 11 cents off Lucent's EPS figure. First Call now shows analyst consensus at -$0.09 for the second quarter.
Why must Lucent pay so much? "Clearly, Lucent wanted to avoid the uncertainty of a jury trial," says Steve Levy of Lehman Brothers. "It's one of the most widely held stocks, and it had one of the largest declines in market value... Obviously, advisers said, 'Let's settle, because potential damages could be really sizeable.' "
Lucent's litigants included the likes of Teamsters Local 175 and 505 D&P Pension Trust Fund, headquartered in West Virginia, and the Parnassus Fund and Parnassus Income Trust/Equity Income Fund, based in San Francisco, which could have been multimillion- or even billion-dollar threats to Lucent's stability.
Levy thinks the figure Lucent's paying is high, but not destructively so. "On the surface it looks huge, but if you peel it back... you see the insurance company is paying [a large percentage], that the timing is 18 months, that the bulk of Lucent's payment is in warrants."
As for the one-time charge the company's taking for the settlement, Levy says: "I think they'll look beyond that eleven-cent charge at revenues and whether Lucent's still on track to achieve profitability by September."
Lucent's descent was among the most dramatic ever: At the height of the boom, Levy points out, Lucent soared to a market cap of $280 billion. Today, it's closer to $6 billion.
The settlement is a milestone for Lucent in terms of its image, because it ends a series of high-profile claims against the company. Last month, Lucent closed the book on an investigation of its accounting practices by the U.S. Securities and Exchange Commission (SEC) (see Lucent to Settle With SEC). And earlier this year, the company resolved a dispute with a former employee that had stirred a pot of accusations (see Lucent Puts Aversano Suit to Rest).
In those cases, like this one, Lucent resolved the issues without admission of wrongdoing -- clearly, a win for the company as it seeks to revamp its image and encourage shareholder confidence.
At press time, Lucent shares were trading at $1.52, up $0.04 (2.70%).
— Mary Jander, Senior Editor, Light Reading
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