Computer Associates (CA) said it would issue stock worth $144 million in order to settle the three class-action shareholder lawsuits that hit the company over accusations of accounting improprieties.
The Islandia, N.Y., software company said it would issue 5.7 million shares of stock to the plaintiffs, who filed suit over allegations of shady accounting practices stretching back to 2000.
Investors had charged that CA renewed contracts before their terms ended in exchange for larger payments up front, which led investors to believe that CA had closed more deals and incurred higher revenue than it really had.
Also settled was a class-action suit brought under the Employee Retirement Income Security Act (ERISA) representing Computer Associates employees who
purchased company stock through a 401(k) plan, and a derivative suit filed
in Delaware.
While the settlement appears large, CA stressed in a public statement that
it is not an admission of wrongdoing or accounting improprieties. CA
Chairman and Chief Executive Officer Sanjay Kumar discussed the settlement,
which could have take years to come to fruition.
“Settling all of these cases at one time is a major step forward, because it
removes the uncertainty that always accompanies unresolved litigation and
clears distractions that have clouded the real performance of our company,”
said Kumar. “While confident in our position, the Board of Directors
concluded that a settlement — especially one that puts more equity in the
hands of shareholders — was the best course of action. It became clear that
it was a far better option than continuing with the expense and distraction
of a protracted legal battle that began five years ago.”
While senior executives may be able to wipe some sweat from their collective brow with
this settlement, they still have to sweat out other issues.
The company is still under investigations by the Securities and Exchange
Commission and the US Attorney’s Office for the Eastern District of New York
for its accounting measures. CA is cooperating with those investigations.
Meanwhile, CA has done its best to not let the litigation affect
its operations, and the company has unfurled its own on-demand computing
strategy to compete with a continuing software trend of allowing users to
draw computing resources as they need it. Several other companies, including
IBM , HP
and Veritas
have embarked on similar initiatives.
The settlement figure, estimated before taxes, is based on CA’s New York
Stock Exchange closing price of $25 on Friday, August 22 and certain
administrative costs associated with settlement. The after-tax impact of
this charge is currently estimated to be approximately $97 million or 17 per
share on a GAAP basis.
Plaintiffs’ attorney fees will be covered in the stock settlement. If CA’s
share price is below $23.43 per share at the time of distribution, up to 2.2
million of the 5.7 million shares would be payable in cash at that price —
or a maximum of $51.5 million in cash. In that case, the stock portion of
the settlement would be reduced to no less than 3.5 million shares.
After clearing the appropriate boards and channels, the settlement will be
submitted for approval to the United States District Court for the Eastern
District of New York.
