Stockholders v Raytheon Company
Raytheon Reaches Record $410 Million Settlement with Investors
The parties have reached a tentative $410 million settlement in several class actions filed against defense contractor Raytheon Company (NYSE:RTN) and certain of its officers and directors by stockholders who purchased the company's common stock between January 28, 1999, and October 12, 1999. The actions claimed that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. Persons eligible to take part in the action should contact attorneys for the class.
The action arose in 1999, based on allegations that Raytheon misled investors by not disclosing difficulties on various Pentagon and construction projects. The tentative settlement leaves standing less-sweeping allegations against Raytheon's auditor, PricewaterhouseCoopers, LLP, claiming it signed off on misleading financial statements by Raytheon, and stood to scoop up more than $70 million worth of fees for non-audit services.
The company has agreed to make a cash payment of $210 million in the second or third quarter of 2004 and issue warrants for Raytheon stock valued at $200 million. The warrants will have a five-year term with a strike price of $37.50. They will be issued when the settlement proceeds are distributed to the claimants -- anticipated to occur in the fourth quarter of 2004 or the first quarter of 2005. Based on a stock price of $32, Raytheon expects that the settlement will include approximately 23 million warrants. The actual number of warrants issued will depend on the stock price at the time of distribution.
Had Raytheon's portion of the case gone to trial, the hearings would have revisited one of Raytheon's most difficult periods. William H. Swanson, now Raytheon's chief executive, led much of its defense business at the time and was named as an individual defendant in the litigation, along with former chief executives Daniel P. Burnham and Dennis J. Picard. All claims against individuals are resolved by the preliminary agreement.
The case centered on allegations that Raytheon hid problems it was having on various defense contracts and in its former heavy-construction business until a disastrous conference call with investors on October 12, 1999. That day's disclosures caused its shares to fall 44% in one afternoon to $24.25, far below the high they had reached earlier that year of $74.94.
The plaintiffs alleged Raytheon failed to disclose the Navy's dissatisfaction with its work refurbishing P-3 Orion patrol aircraft, a contract that was later canceled. They criticized Raytheon's disclosures about problems at its heavy-construction business and cited testimony from a former executive who said Raytheon misled outsiders about the units' condition.
In a series of pretrial filings, the plaintiffs had noted that at the time L. Dennis Kozlowski headed Raytheon's audit committee. He was later charged with criminally looting Tyco International, Ltd., in a case that ended in a mistrial earlier this year. PricewaterhouseCoopers also was Tyco's auditor.
If completed, the settlement will be among the 10 largest in the history of class action litigation against major corporations. It will lead the Waltham defense contractor to take a pre-tax charge of about $335 million in the second quarter. The company said the lower figure is meant to account for $75 million in insurance payments it expects to receive. Its insurance carriers haven't signed off yet on the deal, but are expected to.
The deal comes just days before a trial was set to begin in U.S. District Court in Boston, and marks a victory for plaintiffs. The plaintiffs had mentioned they might seek damages of more than $1 billion.
The settlement still requires approval from the court. A hearing on the matter has not yet scheduled.
