Thursday, November 10, 2005

 

Oracle Settlement Boon to Shareholders

A creative solution to a tough legal problem was proferred in the Oracle settlement. The CEO of Oracle, Larry Ellison, was sued by a group of stockholders who claimed his sale of $900 million of company stock, shortly before the company missed earnings targets, was improper.

This was a derivitive suit, which requires a little explanation. That is where some lawyers file a suit on behalf of the company, seeking payment of damages to the company. This is allowed because the company, left to its own resorts, might not choose to sue the CEO, who is in control of the company and therefor doing the choosing. In the usual outcome, the defendent pays some money to the company and the company pays some money to the lawyers. There is nothing for the shareholders, of course, which distinguishes it from a class action, where there is almost nothing, but that is another story. The shareholders just take pleasure in the increase of the cash in the company.

In the Oracle case, the lawyers (on behalf of the company) settled for Ellison to make a $100 million gift to charity and for the company to pay the lawyers $24 million in fees for helping the company out in the matter. The company saved all the time and suffering involved in the lawsuit, as well as having its CEO distracted. The shareholders got the usual deal, taking pleasure in the public relations boost to their company because of the personal donations by the CEO. This is a win win situation, because cash would pleasure the stockholder only as to his relative share, whereas the glow from the charitable gift can be shared in full by all.

Unfortunately, there was some misunderstanding, and the judge said he thought the $24 million was a typo, or some kind of a joke, and refused to approve the settlement. While the company could still be relieved of the burdens of litigation if the suit was dropped, the shareholders would be bereft of glow, so the terms will have to be tweaked.

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