NEW YORK - Time Warner Inc. said yesterday that it would pay $2.4 billion to settle a shareholder lawsuit over alleged improper accounting stemming from its merger with America Online Inc.
The world's largest media company is placing the money in reserve, along with another $600 million to cover related settlements. The announcement came as Time Warner reported a loss for the second quarter because of the tentative settlement.
"By acting now to put these matters behind us, we avoid the costs and distractions of protracted litigation, an outcome we clearly believe serves the best interest of our shareholders," Chief Executive Officer Richard D. Parsons said during a conference call. "While other related litigation matters remain, today's settlement represents very substantial progress in closing this chapter for Time Warner."
Time Warner's auditor, Ernst & Young, also agreed to pay $100 million to settle the suit.
The three-year-old class action lawsuit alleged that America Online, AOL Time Warner and top executives overstated advertising revenue by at least $1.7 billion through improper accounting and transactions to inflate stock prices and ensure completion of the 2001 merger.
The settlement will benefit millions of shareholders who purchased or acquired AOL and Time Warner securities between Jan. 27, 1999, and Aug. 27, 2002, said the lead law firm for the plaintiffs. The parties will seek court approval of the agreement next month, said Heins Mills & Olson PLC of Minneapolis.
Time Warner also said yesterday that it would buy back $5 billion of its shares over the next two years. Stockholders had sought the move to bolster share prices.
For the quarter that ended in June, Time Warner reported a net loss of $321 million, or 7 cents a share, compared with a profit of $777 million, or 17 cents a share, for the second quarter last year.
Excluding one-time items, including the $3 billion reserve, the company said it posted a profit of 18 cents per share, just shy of the 19 cents forecast by Wall Street analysts.
Revenue fell 1 percent to $10.7 billion from the second quarter of 2004.
Time Warner has struggled to undo the damage wrought by the AOL merger, which led to federal investigations and a fall in its stock price.
The company said the class action plaintiffs also would have access to another $150 million set aside to deal with shareholder lawsuits as part of a Justice Department settlement announced in December involving AOL fraud charges. Time Warner paid a $60 million fine in that case.
Time Warner also paid $300 million to end a Securities and Exchange Commission investigation of AOL accounting irregularities. Time Warner said it would seek to have that money moved to the settlement fund.