online.wsj.com
Lucent Settles Shareholder Suits In Agreement Worth $568 Million
By DENNIS K. BERMAN
Staff Reporter of THE WALL STREET JOURNAL
Lucent Technologies Inc. said Thursday night that it had settled massive shareholder litigation for a total of $568 million in cash, stock and warrants, in one of the largest such settlements in history.
The size of the settlement shows the amount of risk that Lucent, one of the country's most widely held stocks, faced from at least 54 shareowner lawsuits. People involved in the case said that the Murray Hill, N.J., company faced a potential bankruptcy situation if it had gone to trial and lost.
The settlement also shows that Lucent is trying to put its woes behind it. Just last month, the company settled a civil case with the Securities and Exchange Commission without admitting or denying any wrongdoing, though Lucent vowed not to violate securities laws in the future. The SEC had been investigating Lucent's sales practices for over two years. "The clouds have been put behind us," said Kathleen Fitzgerald, Lucent's spokeswoman.
The main thrust of the shareholder suits claimed that the large telecommunications-maker engaged in financial fraud and aggressive sales practices to sustain its growth during the height of the telecom boom, from the time of its fourth-quarter 1999 financial results until December 2000. Then, Lucent admitted it had incorrectly accounted for $679 million in revenue in its fiscal 2000 fourth quarter.
The settlement will pay the estimated five million holders of Lucent stock between Oct. 26, 1999, and Dec. 21, 2000, a mix of both cash and stock totaling $315 million. According to the company, it will have discretion to issue these shareholders either stock or cash.
Lucent said its insurers agreed to pay another $148 million in cash, and Lucent also will issue 200 million stock warrants to shareowners, with a strike price of $2.75 and a three-year expiration. The company estimates the current value of those warrants at $100 million. The company said it would contribute another $5 million for administration of the claims process. While the company hopes to recover some of its portion of the settlement from insurers, Lucent said it expects to take a charge in the second quarter of $420 million, or 11 cents a share.
Attorneys for the plaintiffs, led by New York firm Milberg Weiss Bershad Hynes & Lerach LLP, also will collect a sizable amount for their work in the case. Partner David Bershad said the attorneys expect to seek fees of as much as 20% of the total settlement, and the attorneys would take the same proportion of cash, stock and warrants that shareholders get. That would mean fees of as much as $115 million. Both the settlement and the attorneys' fees require court approval.
Mr. Bershad said in an interview Thursday night that he believed the plaintiffs' cases posed "a serious threat" to Lucent.
Lucent was once of the stock market's biggest stars, reaching a height of $63 in December 1999. In 4 p.m. composite trading Thursday on the New York Stock Exchange, Lucent was at $1.48, off four cents.
Write to Dennis K. Berman at dennis.berman@wsj.com
Updated March 28, 2003
KJC |
