TXU Pays $150M to Settle Class Action Lawsuit
Dallas-based TXU Corp. said Friday that it will pay $150 million to settle a class action lawsuit filed in October 2002 related to its 2002 stock price collapse over credit troubles involving its European operations. In settling the litigation, TXU Corp. denied any liability.
The company's shares plummeted from about $49/share in August 2002 to less than $10/share in October of that year because of a collapse in the European wholesale power market and actions taken by credit rating agencies impacting TXU's European operations. TXU sold its European businesses in October 2002, cut its dividend and took at $4.2 billion writedown leading to a $4.2 billion net loss for the year.
The class action lawsuit filed against the company in 2002 alleged that TXU, its officers and directors published misleading information about the company's ability to succeed in a deregulated market and the performance of its European operations, causing stock price inflation that was then undercut by TXU's October 2002 announcement that it would cut its dividend by 80% and no longer support its European operations.
The settlement agreement on Friday includes a one-time payment of $150 million to purchasers of TXU securities between April 26, 2001 and Oct. 11, 2002, and, subject to board approval, the adoption of certain corporate governance initiatives.
"Settling this litigation now removes the distractions, expense and uncertainty that accompany such litigation and enables us to look ahead and focus on delivering on our restructuring plan and improving the performance and competitiveness of our core businesses," said CEO C. John Wilder. "Shareholders will also benefit from governance initiatives that are adopted as part of this settlement. These initiatives will complement TXU's ongoing commitment to governance excellence."
As part of the settlement, TXU's board will consider for adoption several new corporate governance initiatives: more stringent criteria for determining director independence than the criteria currently used; an annual review of director compensation; a policy requiring majority shareholder approval prior to the adoption of any stock option plan; and establishment of stock ownership guidelines for directors.
Additionally, consistent with TXU's ongoing governance initiatives, the board will replace at least two directors no later than May 2006 with candidates who meet pre-defined independence criteria.
TXU said insurance companies of certain directors and officers will pay $66 million of the settlement, and that it expects to recover more from other insurers. The remaining $84 million is less than the amount the company previously reserved for the settlement of litigation cases.
The parties currently are finalizing the settlement agreement before submitting it to the court.
TXU's subsidiaries include the largest competitive retail power provider in Texas and the largest regulated electric utility in Texas. The company also has more than 18,300 MW of generation in Texas.
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