Nortel Takes $2.5B Hit
The company said it has agreed "in principle" to settle the class action lawsuits, brought against Nortel following the accounting scandal that plagued it in 2004 and 2005. (See Nortel Sues Former Executives, Nortel Fires CEO, Canadian Regulator Probes Nortel, SEC Pops In on Nortel, and Nortel Rattles Nerves.)
The news sent the vendor's share price down by 25 cents, nearly 8 percent, to $2.77 in pre-market trading.
To settle the lawsuits, Nortel is proposing to pay $575 million in cash and issue 628,667,750 common shares, equivalent to 14.5 percent of its current outstanding stock. Based on yesterday's closing share price of $3.02, that share issue would be worth $1.898 billion, taking the total charge to $2.473 billion, or $0.57 per share. The charge would be made against the company's fourth quarter of 2005.
At Tuesday's closing price, Nortel's market capitalization was $13.1 billion.
Nortel has until March 16 to file its fourth quarter results. A spokesman says that while no specific date has been set, the company expects to file its financials on time.
Nortel has also agreed to contribute half of any funds recovered in the ongoing litigation against Frank Dunn, Douglas Beatty, and Michael Gollogly -- the former executives "who were terminated for cause" in April 2004. (See Nortel Dismisses Dunn.)
Nortel noted, though, that the "proposed settlement would contain no admission of wrongdoing by the Company or any of the other defendants."
Nortel said the proposed settlement is dependent on it reaching a "global settlement encompassing all pending shareholder class actions and proposed shareholder class actions commenced against the Company and certain other defendants following the Company's announcement of revised financial guidance during 2001, and the Company's revision of its 2003 financial results and restatement of other prior periods." It is also dependent on the "contribution of available insurance, which has yet to be resolved," noted the company.
The move is part of Nortel's attempt to distance itself from accounting issues. It has a new CEO in Zafirovski, who has been appointing new senior executives. The company has also found a route back into the critical broadband access market through its new joint venture with Huawei Technologies Co. Ltd. . (See Nortel's New Faces Face Tough Task and Nortel & Huawei: Broadband Buddies.)
— Ray Le Maistre, International News Editor, Light Reading
Means their shares are worth $3.
After the attorney fees, they might receive $100 out of the settlement. Have to remember that Class Action Lawsuits (in general) are there to provide the Lawyers with money not the victims. If you can get a big enough "class" it is all gravy.
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