Nortel Moves to Settle Lawsuits

Nortel CEO Mike Zafirovski’s work to clean the decks has moved to the legal world on news the company has reached a settlement in principle to settle two major lawsuits filed in the Southern District Court of New York. The deal will be part of a global settlement involving all the class-action lawsuits launched against Nortel in the wake of an accounting scandal in which a dozen senior executives, including ex-CEO Frank Dunn, allegedly cooked the books to trigger a lucrative bonus plan. So what’s it going to cost to make these lawsuits go away? A cool $2.4 billion. This will consist of $575 million in cash and the issuance of 628.6 million common shares, which represents 14.5% of current equity. Nortel will also contribute one-half of any recovery in the existing litigation by Nortel against Dunn, ex-CFO Douglas Beatty and ex-controller Michael Gollogly, who were terminated for cause in April, 2004.

Update: It’s interesting to note that many analysts expected the settlement to cost Nortel $500-million to $1.5-billion. The stock fell only 3 cents today to $3.44 in Toronto, which suggests the cost of the settlement is being offset by the elimination of the “overhang” of class-action lawsuits.

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