Nortel Networks Ltd. said it may pay more than $2.4 billion in cash and stock to settle a pair of shareholder lawsuits filed as a result of the company’s accounting fraud scandal.
The company said it agreed in principle to pay $575 million in cash and to issue 628.7 million of its stock shares, valued at about $1.9 billion, which represents 14.5 percent of the company’s equity.
“Resolving these important issues will enhance the company’s ability to focus on our transformation and renewal priorities and our customers,” said Mike Zafirovski, who was recently appointed president and chief executive officer of Nortel.
The proposed settlement was agreed to after mediation by U.S. District Court Judge Robert W. Sweet, who is not presiding over any of the actions that are the subject of the proposed settlement, Nortel said. The proposed settlement is conditioned on the company reaching a global settlement encompassing all pending shareholder class-actions and proposed shareholder class-actions against the company and certain other defendants. In addition, the company said that proposed settlement is conditioned on Nortel and the lead plaintiffs reaching agreement on corporate governance related matters and the resolution of insurance-related issues.
However, the proposed settlement does not contain admission of wrongdoing by Nortel or any of the other defendants.
“Our intent is to achieve a fair resolution of these lawsuits and avoid a prolonged, uncertain and costly litigation process,” said Harry Pearce, chairman of Nortel’s board of directors. “A final settlement would remove a significant impediment to Nortel’s future success and allow Mike Zafirovski and the Nortel team to move forward.”
Nortel said it plans to continue cooperating with U.S. and Canadian securities regulators and law enforcement authorities as investigations relating to the company’s accounting restatements continue, but it noted that the proposed settlement did not relate to these ongoing investigations.
“Today’s agreement in principle is an important milestone for Nortel,” Zafirovski said. “We continue to work vigorously on the implementation of our remediation plan and addressing our outstanding regulatory matters. In addition, we continue to improve our governance provisions and financials systems and controls. These are critically important for the company. We remain fully committed to rebuilding value for the benefit of all stakeholders.”
The settlements could restore confidence in the telecom equipment maker after accounting scandals rocked the company, forcing it to restate results from 1999 to 2003. Many executives were shown the door as tales surfaced of falsely inflated sales and costs.
Nortel said it expects to record a $2.47 billion charge against its 2005 earnings if the settlement is approved by the courts, regulators and stock exchange officials.
“Nortel has found it difficult to recover so far from the scandal of several years ago,” commented Jeff Kagan, a telecom industry analyst. “We thought it was a new beginning last year when they brought all their books up to date, but they have not recovered yet. Based on what we have seen so far, I would be careful to think that this would jump start the company’s performance. The industry and its competitors have been successful over the last few years. Nortel has to get back on track, quickly.”
Investors didn’t seem fazed by last week’s settlement talks as Nortel’s stock remained relatively flat.
