Wednesday, October 20, 2021

Judge approves $1.75bn Twitter settlement – ‘at the highest premium’

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Twitter Inc and its independent directors must pay shareholders $809.5 million as part of a $960 million settlement, a California judge said on Thursday, a deal that could clear the path for the highly acquisitive San Francisco company to return funds to its investors.

Twitter’s $1.75bn acquisition of smartphone messaging service, Whatsapp, is widely expected to be the next potential acquisition of a larger technology company.

Judge Richard Seeborg approved the settlement in a Los Angeles court, declaring the money donated by the company “sufficient to compensate plaintiffs for their claims”.

“The settlement appears reasonable given the amount of fees and expenses that Twitter would have had to pay in connection with this litigation,” Seeborg said.

That the settlement is both an “absolute and preliminary victory” for shareholders means a high premium of about 5.1% compared to Twitter’s stock price before the lawsuit was filed, an unproven but potentially lucrative strategy for investors.

The suit alleged that Twitter’s board breached its fiduciary duties by granting too many stock options to directors, keeping the company financially weak and breaking open a corporate structure known as a ‘Square deal’ – in which a private company is valued much higher than its publicly traded shares – by acquiring a company and then selling its shares on the open market.

Twitter filed for an initial public offering in 2013 and the company was already publicly traded for almost three years before the suit was filed in April 2016. The company did not immediately respond to a request for comment on the settlement.

“It’s surprising,” said David Kappos, former general counsel of Twitter. “The plaintiffs had a complaint about allegedly improper compensation for Twitter directors that was fully, uncritically accepted by Twitter’s board.

“At the same time the board was voting to take stock awards to directors when it had them offered, Twitter itself was going to massive IPO, what seemed like a historic event for shareholders,” Kappos said.

Shareholders sued Twitter and its directors, saying Twitter provided improperly high stock grants, putting the company at a competitive disadvantage.

In exchange for dropping their cases, investors who purchased Twitter stock between 2013 and 2015 will receive an extra $118.5 million of Twitter stock as part of the settlement. After fees and expenses, the shareholders agreed to receive 4.9831 shares of Twitter stock for each share of Twitter held.

Twitter’s executives are also parting with more than $200 million. The company set aside $135 million to pay legal costs and $60 million to pay out out executives, after waiving fees from the company’s early legal battles.

The shares were unchanged at $17.06 on Thursday morning.

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