Wall Street raider Saul Steinberg and Walt Disney Co. agreed Wednesday to a $45-million cash settlement of two "greenmail" suits over the company's 1984 buyout of Steinberg's 11% stake in Disney.
Lawyers on both sides, as well as elsewhere, said Wednesday that they knew of no other cash settlement in a greenmail case. Greenmail is commonly used to refer to a company's purchase of stock at an above-market price to get rid of an unwanted suitor.
The settlement announcement put a dramatic end to a jury trial that was in its third week before Judge Abby Soven in Los Angeles County Superior Court.
The trial involved a class-action lawsuit filed against Steinberg and the company by former Disney shareholders and a shareholder suit filed against Steinberg and Disney directors by some current shareholders.
Could Have Been Landmark
A decision in the complicated case might have been a landmark as the first ruling concerning greenmail in California.
Reliance Group Holdings, the holding company through which Steinberg bought his Disney stock, said in New York that it would pay $20.8 million of the settlement and take a pretax charge for that amount against its second-quarter profit.
Steinberg will still come out with a handsome return on his original investment, having collected $59 million in profit and expenses from Disney in 1984. While being held by court order in a special fund, the $59 million has grown to about $100 million with interest.
Despite Steinberg's profit, William Lerach, a plaintiffs' attorney with a key role in the trial, said he thinks the settlement could be a deterrent to greenmail. "It sends a warning," he said.
Another attorney for the shareholders, J. Michael Hennigan, agreed. "I assume it will have an effect. Will it stop it? I doubt it."
Richard J. Riordan, a prominent Los Angeles lawyer and investor, commented: "It might make people think twice, but the fact that (Steinberg) did get away with some of his profits may mean that greenmail is here to stay."
Although Reliance disclosed its share of the settlement, the parties agreed to withhold details of the agreement.
But sources said that much of Disney's $24.2-million share apparently is to be paid by the company's insurer, which protected the 11 Disney directors against losses.
The directors were accused of violating their fiduciary duty when they voted unanimously on June 11, 1984, to buy Steinberg's stock for $325 million. Disney, which said it is contributing an "immaterial" amount to the class-action settlement, refused Wednesday to identify its insurer. However, other sources said it is Chubb Corp.
Drexel Burnham Lambert Inc., which was Steinberg's financial adviser on the Disney deal, is making a small contribution to the settlement, according to one source. However, Morgan Stanley & Co., Disney's investment banker, is not contributing to the settlement, according to its attorney, Richard B. Kendall.
The settlement funds will be divided among the shareholders who sued and their lawyers.
The largest share--$29.5 million--will go to settle the class-action suit by former Disney stockholders who sold their stock in the seven months immediately after the buyout of Steinberg. Disney's stock price plunged to about $45 a share from about $65 in that period. A large number of these shareholders are professional Wall Street traders and arbitragers.
Much of the remaining cash is expected to go to lawyers' fees, which the court is expected to approve in September. Such fees can run to 25% to 35% of damages, attorneys said.
The Disney Co. itself is not likely to end up with much, if any, of the settlement funds, even though one of the two suits settled was a so-called derivative action filed on the company's behalf by shareholders who have held their stock from 1984 to the present.
The total value of the two legal settlements was put by plaintiffs at $89.5 million. That is the total of the $29.5-million settlement of the class-action suit added to the derivative suit settlement of $45 million in cash and $15 million in "additional economic benefits attributable to the withdrawal of a cross-claim by Reliance against Disney."
However, everyone conceded that the $45-million settlement includes the payment for the class-action suit.
The cases involved claims for more than $500 million. Both Reliance and an attorney for the Disney directors said that they had agreed to settle because of the risk and uncertainties of a jury trial with exposure to such high damages.
The joint announcement of the parties, read to the jury by Soven, said the settlement was "not an acknowledgement of any wrongdoing or liability by any defendant."
Further, the parties said, the settlement "contemplates a finding by the court" that the 11 Disney directors in 1984, who were defendants with Steinberg, "acted in good faith and in what they believed to be the best interests of the company."
Michael H. Diamond, attorney for the directors, said that the terms of settlement would ensure that the directors were protected from losses.
One of the oddities of the case is that the jurors were to decide the facts of the class-action case, but, unknown to them, Judge Soven was to decide the merits of the derivative suit.
Lerach used stronger language in his opening statement to Judge Soven without the jury present than was permitted by the court when Hennigan gave his opening statement to the jury.
For instance, Lerach called the 1984 deal a case of "blackmail euphemistically called greenmail." He said also that "the raider was enriched (and) the directors were entrenched" while the stockholders lost money. The various defendants, he said, "worked together for their own selfish ends."
Staff writer Nancy Rivera Brooks contributed to this story.