Nortel proposes $2.5 billion shareholder settlement

Company says it will pay $575 million, issue nearly 630 million shares to settle suits arising from financial scandal.

Marguerite Reardon
Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Nortel Networks said Wednesday that it plans to pay about $2.5 billion in cash and stock to settle two shareholder class action lawsuits, which arose from an accounting scandal under the company's former management.

The proposed settlement calls for Nortel to pay shareholders $575 million in cash and issue 628.7 million shares of its stock worth nearly $1.9 billion, based on Nortel's closing price Monday of $3.02 on the New York Stock Exchange.

Shareholders--who filed suit against the company following Nortel's revised guidance in 2001, revised financial results in 2003 and restatements for other prior periods--must accept the terms of the settlement before it takes effect.

Nortel has been trying to regain its footing since an accounting scandal forced the company to restate several quarters of financial results. The company is still under criminal investigation in the United States and Canada.

In April 2004, Nortel fired some of its top executives, including former Chief Executive Frank Dunn, over the scandal.

The Brampton, Ontario, telecommunications equipment maker is now pushing to get back on track. After recently hiring former Motorola executive Mike Zafirovski as its new president and CEO, the company is looking to put all the litigation behind it.

"Resolving these important issues will enhance the company's ability to focus on our transformation and renewal priorities, and (on) our customers," Zafirovski said in a statement.

Nortel said it expects to record a charge of $2.47 billion, or 57 cents a share, against its 2005 earnings if the settlement is accepted by shareholders.