Nortel to Pay $2.5 Billion to Settle Lawsuits

Telecommunications equipment maker Nortel Networks Corp. said Wednesday that it had reached a tentative agreement to pay $2.5 billion in cash and stock to settle two shareholder class-action lawsuits over the company’s accounting scandal.

Nortel, which has been working to recover from the scandal that forced it to restate previous financial results and terminate several senior executives, said it wanted to avoid being tied up in prolonged litigation.

Shareholders filed numerous lawsuits against Nortel for allegedly violating U.S. and Canadian securities laws.

Under the proposed settlement, Nortel said it would pay $575 million in cash, issue 628.7 million shares, or 14.5% of its current equity, and contribute half of any funds it recovers from suits against former senior officers whom the company fired in April 2004.

Nortel said the stock portion of the payment would result in a charge of about $1.9 billion. In total, on an after-tax basis, Nortel expects to incur a charge of $2.47 billion, or 57 cents a share.

“Our intent is to achieve a fair resolution of these lawsuits and avoid a prolonged, uncertain and costly litigation process,” Nortel Chairman Harry Pearce said in a statement.

Shares of Brampton, Canada-based Nortel declined 4 cents Wednesday to $2.98.