A Sprint Corp. shareholder filed suit against company executives Wednesday, alleging that Sprint CEO William Esrey and four other senior managers used the failed merger with WorldCom Inc. to get an early grant of US$600 million in stock options.
The Amalgamated Bank’s Longview Collective Investment Fund filed suit in Jackson County Circuit Court in Murphysboro, Illinois, charging Sprint managers with “breach of fiduciary duty, waste of corporate assets, unjust enrichment, and fraud,” according to a press release issued by the law firm representing the bank’s investors. The suit names Esrey and WorldCom CEO Bernard Ebbers, as well as more than 20 other Sprint executives and directors, as co-conspirators and defendants.
Sprint executives pushed forward with the merger, despite knowing that regulators would oppose it, in order to take advantage of an accelerated stock plan, according to the suit. The law firm said Sprint shareholders became liable for a company-wide total of $1.7 billion in options held by employees as a consequence of continuing the merger, and that several executives, senior managers and about 2,000 employees left as a result of the financial windfall.
After 28 years with the company Sprint’s chief technology officer, Marty Kaplan, resigned in October. Andrew Sukawaty, Sprint’s CEO for its wireless unit, stepped down in mid-June, and the company also lost its chief strategy planner and senior vice-president of consumer market planning.
The suit alleges that executives secretly altered rules for vesting of options in 1998, allowing the options to mature early in the event of a merger or change in control.
“Previously the company rules had defined a ‘change of control’ as either a turnover of a majority of directors within a two-year period or as the acquisition of more than 20 percent of the outstanding stock by an outside company,” the law firm’s statement read. “Under the new terms, which the lawsuit says were altered without shareholder approval, early vesting can occur if the shareholders only vote to approve a proposed merger, irrespective of the eventual outcome.”
Sprint and WorldCom announced the proposed merger in October of 1999. The deal was initially valued at $129 billion, the largest in history. The U.S. Department of Justice and European regulatory officials sued to block the deal, and the two companies scrapped the plans in September.
A Sprint spokesman would not comment about the suit.