OLATHE, Kan.-A Kansas court has ruled that a multibillion-dollar class-action lawsuit brought against Sprint Corp. regarding the recombination of its wireless and wireline stocks could move ahead.
The suit-brought by law firm Grant & Eisenhofer P.A. on behalf of lead plaintiff Carlson Capital L.P.-claims that the recombination unfairly brought “substantial profit to directors and management at the expense of other shareholders left out of the transaction.” The suit also alleges that a group of Sprint insiders illegally engineered the stock recombination by manipulating conversion rations of the tracking stock that overvalued Sprint’s wireline business.
The suit also claims that former Sprint chief executive William Esrey and chief operating officer Ronald LeMay directed the manipulation. Esrey and LeMay stepped down from their positions at Sprint in 2003 due to allegations that they participated in an illegal tax shelter.
The stock recombination was initiated early last year and provided Sprint PCS shareholders with one-half a share of the company’s wireline FON tracking stock as well as providing all shareholders with a 12.5 cent per share dividend. At the time the recombination was announced, both of Sprint’s tracking stocks nearly doubled to around $20 per share.
The suit also noted that Sprint took a $3.6 billion write-off on its wireline operations last fall following a shareholder lawsuit. The suit estimates damages at between $5 billion and $10 billion and is scheduled for trial early next year.
“With the write-off, the company made a de facto admission that it grossly overpaid for the FON stock-we argue that it’s time to transfer that value rightly to PCS shareholders,” said attorney Jay Eisenhofer.
Analysts at the time noted the recombination made sense for Sprint as it strengthened the company’s bottom line ahead of any planned merger-and-acquisition activity. Sprint announced late last year plans to merge with wireless rival Nextel Communications Inc. in a deal valued at around $70 billion. As part of the merger plan, Sprint said it will spin off its local wireline subsidiary, which will increase its wireless exposure.
A Sprint spokesperson said the company was “disappointed with the court’s ruling,” and that the claims “are unfounded and without merit.” Sprint added that it will now focus on providing additional facts in the case and will present them to the court before a ruling on the plaintiff’s case is made.
