Tyco International Ltd. said yesterday that it had agreed to pay about $3 billion to settle shareholder claims from one of the largest corporate-fraud cases ever.
The announcement ended uncertainty over the legal battle as the company prepares to split into three parts. One of them, Tyco Electronics Corp., will be based in Tredyffrin Township in Chester County.
Tyco said it would set up a $2.975 billion cash fund to pay claims filed by shareholders against the company arising from actions by former chief executive officer L. Dennis Kozlowski and other top officers convicted of looting the company and inflating its value.
The company is officially based in the Bahamas, but its operating headquarters is in West Windsor, N.J.
Tyco spokesman Paul Fitzhenry said the company also would pay interest on the $2.975 billion and turn over half of any money it recovered from ongoing lawsuits against Kozlowski, former chief operating officer Mark Swartz, and former board member Frank Walsh.
"Our balance sheet and cash flow remain strong and will allow us to readily absorb these costs while removing much of the uncertainty around legacy legal matters," chairman and chief executive Ed Breen said in a statement.
Investors, including union and state pension funds and Tyco retirees, were permitted last summer to proceed with a consolidated class-action lawsuit in the U.S. District Court in Concord, N.H., where Tyco formerly had headquarters.
The settlement covers holders of Tyco stock from December 1999 to June 2002 and, in some of the consolidated cases, investors who owned stock starting in October 1998.
Tyco's share price rose 19 cents yesterday to $32.38 on the New York Stock Exchange.
Besides Tyco Electronics, the new companies will be Tyco Healthcare, which will be renamed Covidien and based in Mansfield, Mass., and Tyco International, which will remain in New Jersey and include the fire and security and engineered-products units. The breakup is scheduled for the end of June.
Attorneys for the shareholders said the settlement would top $3 billion with interest, making it the largest payout ever by a single corporate defendant in a securities-fraud lawsuit.
Total settlements involving securities-fraud lawsuits against Enron Corp. ($7.1 billion) and WorldCom Inc. ($6.1 billion) were larger, but those companies are now bankrupt and the payments were made primarily by outside codefendants including investment banks and auditors. Cendant Corp. agreed to settle a shareholder lawsuit for $2.83 billion in December 1999.
"This is a settlement of historic proportions for the investors who suffered significant financial losses, and it also sends a strong message to those who would engage in this type of misconduct in the future," said attorney Richard Schiffrin of Schiffrin Barroway Topaz & Kessler, of Radnor.
Shareholder claims against the company's former auditor, PricewaterhouseCoopers L.L.P., are still pending, so the total amount recovered by shareholders could be larger. Tyco also has agreed to assign its claims against PricewaterhouseCoopers to the shareholders.