Lockheed Must Pay Investor $30 Million : Aerospace: Harold Simmons contended that the firm broke securities laws in warding off his 1990 takeover bid. A jury agreed.
Lockheed lost a $30-million jury verdict Monday to Texas investor Harold Simmons, who alleged in a federal suit in Los Angeles that the aerospace giant failed to disclose critical information in battling his 1990 takeover effort.
Again at loggerheads with Simmons, Lockheed said that the suit “has no merit” and that it would seek to have the verdict overturned or would appeal.
Simmons charged that Lockheed violated U.S. securities laws by failing to publicly disclose that its employee stock ownership plan would grow well beyond an initial 17% of outstanding shares, giving the company an unfair advantage in the ensuing proxy battle.
By the time of the tumultuous 1990 shareholders meeting, the employee stock plan held 19% of the shares and today it holds 25%, said Jeff Davidson, the Kirkland & Ellis attorney representing Simmons.
Davidson said Lockheed knew the shares set aside for the employee plan would be insufficient when the plan was created in 1989, based on the minutes of board meetings and materials presented to the board. As the bloc grew above 17%, Simmons was increasingly unlikely to gain control of the company or unseat the board, he said.
Once public investors learned that the employee plan had more than 17%, the stock’s price suffered, the suit asserted. By the time Simmons dumped his Lockheed stock about a year after the proxy battle, the shares had dropped $6 each, giving him a loss of $53 million.
Simmons sought to recover those trading losses and an additional $52 million for brokerage commissions and for lost investment opportunity. The jury awarded him $24 million for his direct stock losses and $6 million for lost investment opportunity but made no award for brokerage commissions.
Lockheed contended that it was impossible to know how large the employee plan would grow, because it depended on how many employees signed up for a contributory part of the plan and on the size of their voluntary contributions.
Lockheed attorney Michael Diamond of Skaden, Arps, Slate, Meagher, Flom said Simmons lost a key claim that the Lockheed board had breached it fiduciary duty and that the use of the employee plan as a takeover defense was illegal.
Diamond said suits alleging lack of disclosure are unusual in the aftermath of takeover battles, but added that since the employee stock plan was not held illegal, the verdict would not have wide impact.
Diamond said that it was widely reported at the time the employee plan was created in 1989 that it could grow beyond 17% and financial filings in connection with the plan also raised that possibility.
