Led by the Amalgamated Bank's Longview Collective Investment Fund, which holds more than 600,000 shares of Sprint stock for its customers, the suit contends that the company used shareholders' approval of the merger to accelerate vesting of options, even though the deal never went through.
Since April, when the accelerated vesting schedule went through, more than 2,000 Sprint employees have left the company, the suit contends. The company and its separately tracked Sprint PCS mobile phone division have lost $80 billion in market value since that time, the shareholders say.
Sprint declined to comment on the details of the lawsuit.
The merger between Sprint and WorldCom, announced in late 1999, was blocked by federal regulators leery of seeing the merged company gain too much power in the long-distance and Internet infrastructure markets.
Such shareholder lawsuits are common practice after failed mergers or precipitate stock drops. The suit against Sprint puts it in the same boat as companies like Lucent Technologies and Gateway, which also are facing lawsuits tied to drops in earnings or revenues, or even simple market action.
The Sprint suit is more specific than many, however. Shareholders often charge that executives mislead them about market conditions. The Amalgamated suit focuses tightly on the stock option issue, however.
In the course of the suit, Amalgamated's attorneys note that company policy was alleged to have been "secretly" changed in late 1998 to allow accelerated vesting of stock options on a simple shareholder vote for a merger, not just a completed change of corporate control.
It may be difficult, however, for the plaintiffs to link the drop in Sprint stock directly to the stock option issue and employee departures. The companies' closest peers, AT&T and WorldCom, each have bottomed out in recent months over rising market fears about falling revenues and capital spending.
Sprint chief executive William Esrey, WorldCom CEO Bernard Ebbers, and other Sprint executives and directors were named as co-defendants.