Mattel Inc. on Thursday closed the books on what has been called one of the worst acquisitions in corporate history, announcing a $122-million settlement with shareholders over its ill-fated purchase of Learning Co.
The El Segundo-based toy maker said it would take a $25.5-million pretax charge in the fourth quarter to cover legal fees and an uninsured portion of the settlement, with the balance to be paid by insurers.
Mattel's settlement ranks No. 12 on the list of largest monetary agreements between a company and its shareholders, according to Cornerstone Research, a litigation consulting company.
That's still well behind the record setter, Cendant Corp.'s $3.2-billion settlement in 2000 over allegations of improper accounting.
"The settlement of this litigation represents the final conclusion to an unfortunate chapter in Mattel's history," said Bob Normile, the company's general counsel. "We are pleased to have this distraction behind us."
Mattel bought the software company in 1999 for about $3.5 billion, a price that many observers considered too steep. As the unit began to bleed money, ultimately costing Mattel more than $1 million a day, the company's stock began to crumble, eventually falling more than 65%.
The acquisition cost Jill Barad her job as Mattel chief executive; her $50-million severance package further enraged shareholders.
Mattel since has pledged not to grant severance benefits that "significantly exceed" those contained in employment contracts.
Mattel essentially gave Learning Co. to Los Angeles- based Gores Technology Group in late 2000 for future consideration, and last quarter it received a one-time payment of $27.3 million for the unit.
Although the settlement cost is steep, securities experts said, the company's fate before a jury could have been far worse.
"A couple of years ago, nobody really knew about securities cases," said John Gould, Cornerstone's vice president, who said any case that settles for more than $100 million qualifies as a "mega-settlement."
"Now with Enron and WorldCom, I think the public awareness of securities cases is much higher," Gould said.
"What that means is that there is more concern over going to trial because the average person only knows about the cases where something seriously wrong happened."
Mattel shares fell 13 cents Thursday to $20.19 on the New York Stock Exchange; the stock has gained 17% this year.