St. John Shareholder Suit Settlement: $13.7 Million

St. John Knits International Inc. agreed Friday to pay former shareholders $13.7 million in cash to settle a class-action lawsuit alleging that the purchase price for the upscale women’s clothing company did not represent its true value.

If approved by a judge, the settlement would end a legal dispute that erupted after Chief Executive Robert E. Gray, his family and Vestar Capital Partners announced in December 1998 that they wanted to buy the Irvine company.

The Grays and the New York investment firm initially said they would pay $28 a share, but later bumped the offer to $30 a share, or $522 million. Shareholders approved the buyout last June.

Half a dozen lawsuits were filed by shareholders who contended that the company was worth $35 to $45 a share. The shareholders, who owned a total of 15 million shares, accused the company and its executives of breach of duty, “self-dealing” and negligence. The lawsuits were granted class-action status last October by Orange County Superior Court Judge William F. McDonald.

An attorney for the company said Friday that St. John Knits still disagrees with the allegations and believed the company would have prevailed at trial. But it decided to settle to “eliminate the drain on management and corporate resources,” said Brian Timmons, an attorney with the Costa Mesa firm of Latham and Watkins.

In addition to the cash, which will also go to attorneys, St. John Knits agreed to provide former shareholders a percentage of the proceeds if the company is sold, merges or decides on a public stock offering in the future.

The company’s attorneys said the value of that part of the settlement could range “from zero to $75 million,” according to Venus Soltan, a Newport Beach attorney for the plaintiffs.

“The most important thing for us was that the shareholders be given what they wanted when they purchased stock, which is sharing in the success of St. John’s,” Soltan said. “We feel that the settlement does that.”

Soltan also noted that the purchase price was increased after the lawsuits were filed, adding $30 million to the deal.