CHICAGO Diversified manufacturer Tyco International Ltd. TYC.N said on Tuesday it agreed to pay almost $3 billion to settle most class-action lawsuits that followed the accounting scandal that sent former Chief Executive Dennis Kozlowski to prison.
Tyco, which plans to split into three companies in the coming weeks, said it would pay $2.975 billion in the near term into a fund for plaintiffs in 32 class-action lawsuits.
The deal, one of the largest class-action settlements ever by a single company, still requires court approval.
"This is a fantastic resolution and closes a chapter of one of the largest and most appalling examples of corporate fraud in U.S. history," said Jay Eisenhofer, managing director of Grant & Eisenhofer, one of the three plaintiffs' law firms representing Tyco shareholders.
Under terms of the settlement, any recovery by Tyco from its former auditor PricewaterhouseCoopers would also be given to the settling class, according to documents filed with the U.S. Securities and Exchange Commission.
Attorneys for the plaintiffs said they would continue to pursue claims against the auditor.
The class would further receive half of any recovery from Tyco's suit against Kozlowski, along with former company Chief Financial Officer Mark Swartz and former board member Frank Walsh, according to SEC documents.
Legal fees for the plaintiffs' attorneys, which have not yet been set, would be paid out of the total settlement amount, Eisenhofer said.
Tyco said the settlement would allow it to move past the Kozlowski era.
"We are taking an important step to resolve our most significant remaining legacy legal matter," Tyco Chief Executive Ed Breen said in a statement.
"Our balance sheet and cash flow remain strong and will allow us to readily absorb these costs while removing much of the uncertainty around legacy legal matters," he added.
The settlement would rank as the fourth biggest overall in a securities class-action case brought by investors, said Adam Savett, vice president of Securities Class Action Services, a litigation research unit of shareholder advisory firm Institutional Shareholder Services.
"Tyco was one of the few mega-frauds that was still out there" that had not yet resulted in a settlement with investors, Savett said.
In the largest ever class-action settlement, investors won more than $7.2 billion from a group of investment banks and other defendants stemming from the collapse of Enron Corp., while combined settlements in the WorldCom Inc. class-action case totaled nearly $6.2 billion, according to the ISS unit.
The third biggest settlement was the $3.2 billion pact stemming from the Cendant Corp. securities class-action, which included the company, various individuals and auditors as defendants, according to the ISS data.
TYING UP LOOSE ENDS
Former CEO Kozlowski is serving up to 25 years at the Mid-State Correctional Facility in Marcy, New York.
He and former finance chief Swartz were found guilty in June 2005 of looting $600 million from the conglomerate.
The case became synonymous with corporate excess after it came out that Kozlowski had used Tyco money for lavish parties and furnishings for his Manhattan apartment, including art, a $6,000 shower curtain and a $15,000 umbrella stand.
Kozlowski served as CEO from 1992 to June 2002, when he was indicted for evading New York state income taxes. In September that year, he and Swartz were indicted for looting Tyco.
This settlement deals with a complaint filed in early 2003 on behalf of Tyco shareholders from December 1999 to June 2002.
Tyco has the right to terminate the agreement should more than a certain percentage of the class opt out of the settlement, according to the filing. That percentage was not disclosed.
The company, which plans to spin off its health care and electronics divisions into independent publicly traded companies by the end of June, plans to take a charge for the same amount as the settlement in the current quarter.
Tyco, incorporated in Bermuda but with headquarters in New Jersey, announced its break-up plan, which would cost up to $1.6 billion, in January 2006.
Kozlowski also floated a break-up plan shortly before Tyco became mired in scandal.
Tyco shares were up 2.05 percent at $32.85 in early afternoon trading on the New York Stock Exchange.
(Additional reporting by Martha Graybow and Patrick Fitzgibbons in New York)