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Carnation Will Pay $13 Million to Settle Suits in Nestle Takeover

October 09, 1987|AL DELUGACH | Times Staff Writer

Carnation Co. and two members of its founding family have agreed to a $13-million settlement of lawsuits against them by public stockholders who sold their Carnation shares just before Nestle bought the Los Angeles firm in 1984 for $3 billion.

The settlement, which is subject to court approval after a hearing scheduled for Dec. 16, was disclosed Thursday by the winning side and later confirmed by the company.

Other suits by former Carnation shareholders are pending here and in New York against Ivan F. Boesky, who federal regulators said made $28 million trading in Carnation stock with the aid of illegal insider tips from a brokerage official, Martin A. Siegel. Boesky is the central figure in a huge and continuing scandal that has enveloped Wall Street since last year.

The money from the settlement of class actions brought against Carnation, former President Dwight L. Stuart and his brother, Elbridge H. Stuart, will go to several thousand people who sold their Carnation shares during a feverish 10-week run-up in its market price from about $57 to about $80 immediately before the deal was announced Sept. 4, 1984.

During the period of the unusual market activity in its stock, the company repeatedly said it knew of no reason for the rise.

No Complaint Filed

Those statements later were called "false and misleading" by the Securities and Exchange Commission in July, 1985, some months after the suits were filed. The SEC findings held that top officials of Carnation and Nestle were actively engaged in acquisition negotiations during the time Carnation was being asked about the subject.

Company executives who knew of the negotiations had a responsibility to be sure that no misleading statements were issued on its behalf, the SEC said. The SEC noted at the same time that a Nestle official had warned Carnation that it would terminate the discussions if Carnation disclosed any Nestle contacts.

The regulators did not file a complaint, and Carnation consented to the issuance of the SEC's report on its private investigation of it without admitting or denying the statements made in the report.

On Thursday, in response to questions about the settlement, Carnation said that it was signed before U.S. District Judge Francis C. Whelan on Sept. 22.

Noting that the plaintiffs' allegations centered on the Nestle acquisition of the company, its statement added: "Carnation Co. continues to deny all claims and contentions. Further litigation would have been protracted and costly for all parties."

The statement concluded by saying that the $13 million has been placed in escrow for the benefit of the plaintiff class. Attorneys for the Stuarts did not return calls from The Times on Thursday. Carnation did not comment about any arrangements for dividing the burden of the $13-million settlement among the defendants.

Notices of the accord were being mailed to about 3,000 individuals presently known to have sold stock between July 3 and Sept. 4, 1984, the period covered by the complaints. As many as several thousand more could be entitled to some of the money, according to plaintiffs' counsel.

Several Months to File

Ernest T. Kaufmann of Los Angeles, who represented plaintiffs in one of the class action suits, said the beneficiaries will have until Feb. 17 to fill out and return forms giving details of their Carnation sales.

Whelan is scheduled to decide whether to confirm the settlement terms after the Dec. 16 hearing.

Last February, federal regulators alleged that Boesky made millions of dollars when the Swiss food giant bought Carnation. When he bought 1.7 million Carnation shares before the buyout was announced, the SEC said, Boesky had secret inside information from Siegel, then a vice president of Kidder Peabody. That firm had been hired by Carnation as an adviser in connection with Carnation's being sold.

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