Sprint Corp., hampered for years by its merger with Nextel Communications Inc., has agreed to pay $131 million to settle a related class action investor lawsuit.
The deal ends six years of battles that produced 8.7 million pages of documents, 65 subpoenas, 40 depositions and mediation sessions with a nationally recognized mediator. It includes statements from each side that settling makes more sense than continuing the fight.
In an emailed statement, Sprint said Tuesday it “has and will continue to operate in complete adherence with all federal securities laws. Nevertheless, our company has reached an agreement to settle this matter to avoid further expense and distraction.”
The $131 million, which needs court approval, would go into a court-supervised settlement fund that will cover the fees of investors’ attorneys and the claims of investors covered by the lawsuit.
Writing the check amounts to Sprint surrendering two days’ worth of revenues it collects from subscribers.
For Sprint, settling also means putting behind it one more unwelcome vestige of the $36 billion 2005 merger widely seen as one of corporate America’s worst at the time. Sprint and Nextel were unable to meld their technologically incompatible wireless networks, with the merged company finally shuttering Nextel’s network in mid-2013.
Analyst Bill Ho with 556 Ventures LLC said the decision to settle may simply be chief executive Marcelo Claure clearing away the cobwebs of a distant past. The Nextel merger happened under chief executive Gary Forsee, who was one of the defendants named in the lawsuit.
“It happened before his (Claure’s) watch. It happened before Dan Hesse’s watch,” said Ho, referring to Claure’s predecessor, who came to Sprint in December 2007.
Continuing the courthouse fight would simply drain resources from Claure’s effort to boost Sprint’s current network and pitch to potential customers, Ho said. The settlement puts a price tag on the damage that Sprint’s financial team can work into a budget. A trial would leave the legal team’s meter running with the risk of a big payout at the end anyway.
“You never know how much it’s going to cost in the long run,” Ho said.
The merger ended up costing Sprint far more than the price tag on Nextel. The burden of running parallel networks sapped Sprint financially and led many of the Nextel subscribers to go away.
As conceived, the merger carried much promise. And that vision, espoused by Forsee and other executives, defrauded investors in Sprint stock and bonds, the lawsuit had charged.
Investors had complained that between Oct. 26, 2006, and Feb. 27, 2008, Sprint Nextel and top officials claimed the merger was generating significant benefits. They had cited references in conference calls with Wall Street analysts, statements in news releases and financial results in filings with the Securities and Exchange Commission.
These claims, according to the lawsuit, included billions of dollars of savings from the merger, a better mix of customers from changes in credit standards and progress combining the two wireless networks.
A year ago, a U.S. district judge approved the lawsuit’s status as a class action, meaning it would represent the interest of investors in Sprint shares and bonds between those two dates.
Sprint continued to deny those claims in a settlement document filed Monday in U.S. District Court in Kansas. It also acknowledged the cost and uncertainty of trial.
Investors, led by a small group, echoed those same sentiments in the document, convinced of the claims but also aware of the expense and uncertainty “through trial and through appeals.”
Sprint dropped Nextel from its name after Tokyo-based SoftBank Corp. acquired 80 percent of the Overland Park-based wireless carrier.
The lead investors in the lawsuit were the United Steelworkers’ PACE Industry Union-Management Pension Fund, Skandia Life Insurance Co. and the West Virginia Investment Management Board.