A group of Tyco International Ltd. shareholders plans to drop a federal lawsuit aimed at blocking the breakup of the conglomerate into three separate companies, a lawyer for the plaintiffs said Tuesday.
The lawsuit, filed Feb. 14 in U.S. District Court by shareholders suing Tyco in a separate, 4-year-old case, argued the split-up would hamper investors' ability to receive settlement payments if or when a decision is reached in the first case, which seeks billions of dollars in damages for alleged corruption.
The lawsuit had asked the court to halt the split until Tyco provided guarantees for shareholders' recovery rights after the breakup.
Jay Eisenhofer, a lawyer for the shareholders, said the Feb. 14 suit is being dropped because of assurances from Tyco that liabilities will be shared among the three new companies.
"What it means is that investors won't be in any worse position following the split-up than they are now," he said. "What they were planning to do in the split-up was some kind of arrangement whereby only certain assets would be available to satisfy certain portions of the liability."
A Tyco spokeswoman said Tuesday that plans to share financial obligations were part of the separation plans from the beginning.
"We said when we announced the planned separation that we would share the liability among the remaining companies or the companies that result from this," said Sheri Woodruff. "We're glad that by indicating that we will have a specific agreement - that more clearly and specifically addresses this."
Eisenhofer said the lawsuit will be formally withdrawn next week, after both sides reach an agreement on details of the liability sharing.
Tyco announced on Jan. 13 that it planned to spin off its health care, electronics, and fire and security divisions into separate companies by 2007, in hopes of improving business and stock prices.
The company is nominally based in Bermuda, but moved its operational headquarters from Exeter, N.H., to West Windsor, N.J., in 2002.
The move came soon after the resignation of former chief executive L. Dennis Kozlowski. Kozlowski and former chief financial officer Mark Swartz were convicted last June on charges of grand larceny, conspiracy, securities fraud and falsifying business records. Both are appealing their convictions.
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