Securities Class Actions /

Post-Acquisition Complications: Sprint Nextel

Post-Acquisition Complications: Sprint Nextel

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When one major corporation acquires another, the purchasing company may attempt to conceal complications that develop during the takeover transition that may result in significant financial losses, negatively impacting shareholders.

On August 12, 2015, the Court granted final approval to a $131 million settlement* in Cora E. Bennett v. Sprint Nextel Corp., et al.  This securities class action alleged that Sprint Nextel and certain of its senior executives made false and misleading statements concerning the financial benefits of the merger between Sprint Corp. and Nextel Communications, the integration of the two companies’ cellular platforms, and the credit quality of the combined company’s customer base.

*Prior results do not guarantee a similar outcome.

Cora E. Bennett v. Sprint Nextel Corp. et al.

Sprint Corporation, a telecommunications company, acquired Nextel Communications in August 2005. Soon after the acquisition took place, plaintiffs alleged, “cultural differences” between the two companies, including that “rapidly divided legacy Sprint and Nextel personnel . . . and technological differences all but eliminated any chance of consolidating the [two] networks.”

In January 2008, Sprint’s 2007 fourth quarter report revealed a net loss of 683,000 post-paid subscribers. That same day, its stock dipped by almost 25 percent. A month later, Sprint announced that "the company recorded a non-cash goodwill impairment charge of $29.7 billion," contributing to a "net loss for the quarter [of] $29.5 billion or $10.36 diluted loss per share.” This announcement was followed by another dip in stock value by about 20 percent.

In a little more than six months, Sprint Nextel stock fell almost 70 percent from its class period high of $23.25 per share to less than $7.15 per share.

On behalf of investors who purchased stock between October 26, 2006, and February 27, 2008, Motley Rice and co-counsel filed this class action, which alleged that Sprint and former executive officers Gary D. Forsee (Chairman and CEO), Paul N. Saleh (CFO) and William G. Arendt (VP and Controller) attempted to cover up growing customer-base and integration problems while falsely inflating its publicly traded securities price. When the truth was finally revealed about these issues, the complaint alleged, stock value plummeted and investors suffered billions of dollars in damages.

The case is Cora E. Bennett v. Sprint Nextel Corp. et al., No. 2:09-cv-02122, in the U.S. District Court for the District of Kansas.

*Prior results do not guarantee a similar outcome.

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