Nortel Networks Corp. said on Wednesday it has agreed in principle to pay $2.47 billion to settle two class-action lawsuits stemming from an accounting scandal that has rocked the telecommunications equipment supplier.
Nortel said it wanted a settlement so that it could focus on rebuilding its business. It was hit with the lawsuits from shareholders who said they lost money because Nortel revised its financial outlook in 2001 and needed to restate financial results from 2001 through 2003 to correct bookeeping errors.
Under the proposed deal, Nortel will pay $575 million in cash from its reserves and issue 628.7 million of its common shares, or 14.5 percent of its current equity. It sees a total charge of $2.47 billion, or 57 cents a share.
“It’s a lot of dollars,” said RBC Capital Markets analyst Mark Sue. “The settlement was much larger than we had anticipated. We had modeled a settlement of around $600 million to $800 million and coming out mostly from distribution of shares and no cash.”
Nortel shares were off 10 cents or 3.3 percent at $2.91 on New York, and down 12 Canadian cents at C$3.42 on the Toronto Stock Exchange. Once a stock market favorite, Nortel shares have plunged more than 90 percent in the last five years.
The settlement will also include one-half of any money Nortel recovers in its lawsuits against senior officers fired in connection with the accounting debacle.
Nortel fired its top three executives, including CEO Frank Dunn, in 2004 and in a later, related lawsuit said it was seeking damages of C$250 million ($217.4 million).
