Time-Warner to Settle UC Lawsuit for $246 Million
At its meeting last week, the UC Board of Regents approved a $246 million settlement of the University’s lawsuit against Time-Warner Corp., its officers, and directors.
The lawsuit had alleged that America Online (AOL) inflated it stock price by nearly $1 billion prior to its January 2001 merger with Time-Warner by misrepresenting sales, revenues, and subscriber numbers.
UC’s pension and endowment funds, which held significant positions in Time-Warner stock prior to the merger, suffered major losses— approximately $555 million—when the truth about AOL was revealed. (UC held no AOL stock.) The merged company’s stock price dropped from $48 at the time of the merger to less than $10 a share by July 2002.
The University’s settlement of more than $246 million represents its share of a $260 million joint settlement with its co-plaintiff in the case, Amalgamated Bank. The settlement, which is still subject to approval by Time-Warner’s board, is believed to be the largest publicly announced payment on an opt-out securities claim in history.
UC’s retirement and endowment funds currently total more than $71 billion.
UC opted out of an ongoing federal class action to file its own case in state court in April 2003. The University’s net recovery, which will be just over $200 million when finally approved, is estimated to be between 16 and 24 times the amount that it would have otherwise received.
“Opting out of the federal class action suit allowed the University to assert unique claims that were unavailable in the class action,” said UC General Counsel Charles Robinson. “Although every circumstance is different, this result reflects the wisdom of that strategy in this case.”
The settlement does not resolve UC’s claims against AOL and Time-Warner’s auditors, Ernst & Young, which the University will continue to pursue. Background on the lawsuit is available at <www.ucop.edu/news/archives/2003/apr14art1.htm