Time Warner settles suit
NEW YORK — Time Warner Inc., the world’s largest media company, is setting aside $3 billion in reserves to settle shareholder lawsuits filed against the company in the wake of its disastrous merger with AOL.
Time Warner announced Wednesday it had reached a tentative settlement with the lead group of shareholder plaintiffs, who claimed they were cheated in the merger by inflated revenue claims and improper accounting at AOL.
The company also said it had authorized a program to buy back $5 billion of its own shares over the next two years, a step shareholders had been clamoring for as a way to boost its lagging share price.
The announcement came as Time Warner released its second-quarter earnings report. For the three months ending in June, the company posted a net loss of $321 million, or 7 cents a share, versus a profit of $777 million, or 17 cents a share, for the comparable period a year ago.
Revenue fell 1 percent in the quarter to $10.74 billion from $10.86 billion a year ago.
Without the effect of the litigation reserve or other one-time items, earnings were 18 cents per share in the latest quarter, a penny short of the forecast of the estimates of Wall Street analysts polled by Thomson Financial.
The company’s shares fell 15 cents, or 0.9 percent, to close at $17.27 on the New York Stock Exchange, in the middle of its 52-week range of $15.41 and $19.90 but far below pre-merger levels.
Time Warner CEO Dick Parsons said in a statement that even after the shareholder payout, the company’s balance sheet remains “strong.”
Reaching the agreement with the main group of plaintiffs and setting aside a reserve for that and any other shareholder settlements “mark important steps toward putting these matters behind us,” Parsons said.
A law firm representing the lead plaintiff group announced separately that the settlement with their group, which amounts to $2.4 billion, will benefit shareholders who bought shares of AOL or Time Warner between Jan. 27, 1999 and Aug. 27, 2002. The accounting firm Ernst & Young has also agreed to pay $100 million.
The settlement deal must still be approved in court. The company also set aside another $600 million to settle other remaining shareholder litigation.
The agreement marks the latest milestone in Time Warner’s efforts to put the devastating effects of the AOL merger behind it. Time Warner has already reached settlements with federal regulators over charges of improper accounting at its AOL unit.