ATT to pay $100 Million to settle stockholder suit by IBEW Local 98 (Philadephia) Pension

AT&T to pay $100 million to settle suit
Investors had sought $2.4B, claiming deception on finances
Wednesday, October 27, 2004
BY TOM JOHNSON
Star-Ledger Staff

AT&T said yesterday it has agreed to a $100 million settlement of a shareholder lawsuit that accused the telecommunications giant and its former chairman, C. Michael Armstrong, of misleading investors about its financial outlook to inflate its share price.

The settlement, which came two weeks into an expected five-week trial in U.S. District Court in Trenton, would be one of the 20 largest securities class-action settlements, according to attorneys in the case. It is still subject to court approval.

The plaintiffs, which included the New Hampshire Retirement System and the International Brotherhood of Electrical Workers Local 98 in Philadelphia, had sought damages of about $2.4 billion for investors who held shares between December 1999 and May 2000.

At the time, AT&T was in the midst of issuing a so-called tracking stock for its wireless business as well as acquiring the cable system operator Media One. Lawyers for the plaintiffs said the company misled investors about how well its business services unit was performing so it could get a higher price for the wireless shares and keep the Media One deal on track.

In settling the case, AT&T denied any wrongdoing, saying it settled for financial reasons. The company said it believed it would have been vindicated at the end of the trial.

"Given the size of the claims compared to the relatively low amount of the settlement, the inherent risk and uncertainty of legal proceedings, and the very substantial expense of those proceedings, this settlement is the prudent course for the company," AT&T Vice President Edward Barillari said.

The company also denied wrongdoing by any of its officers or executives.

AT&T is responsible for half the settlement amount, or $50 million. Cable giant Comcast, which later purchased AT&T's cable operations, will cover the other $50 million.

Comcast declined to comment. Armstrong, who now serves on Comcast's board of directors, could not be reached for comment.

Attorneys for the plaintiffs said the settlement is a good deal for investors.

"Is it everything we wanted? No," said Peter Pearlman, an attorney for the IBEW. "But $100 million isn't hay. Companies don't pay $100 million to get rid of a nuisance."

Alan Cleveland, general counsel for the retirement system in New Hampshire, called the settlement a "pretty fair result," considering the federal court had dismissed some of the counts in the original complaint, which had narrowed the damages considerably from the $2.4 billion initially sought.

How much each of the estimated 3 million shareholders of record at the time will receive depends upon how many shares they owned and how many investors file claims with the court. Typically, as many as 50 percent of shareholders fail to file claims in such cases, Cleveland said.

It is also unclear how much attorneys' fees will chip into the shareholders' recovery. Cleveland said the amount remains to be approved by the court.

"I can't get into it," he said. "It's not as high as some folks might think."

The settlement comes a week after AT&T announced a quarterly loss of $7.1 billion and said it would shed another 3,700 jobs next year. The company said it has not yet determined the impact of the settlement on its earnings.

Barry Sine, an analyst with HD Brous & Co., said it should not be significant. "We're looking at pennies, not a nickel or a dime per share," he said.

AT&T said it would seek reimbursement for the settlement from its insurers.

Tom Johnson can be reached at tjhonson@starledger.com or (973) 392-5972.


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