Sprint Investors Dial Up Class Certification Victory: Can You Hear Us Now?
On March 27, 2014, plaintiffs scored a significant victory in a case relating to the disastrous merger between Sprint Corp. and Nextel Communications when United States District Judge Eric F. Melgren granted plaintiffs’ motion for class certification in full.
Pervasive problems arose almost immediately after Sprint’s merger with Nextel. Cultural differences divided legacy Sprint and Nextel personnel, and technological differences eliminated the possibility of integrating the two companies’ wireless networks. The combination of these difficulties, among others, led to the deterioration of the company’s customer base. To cover up the company’s worsening condition, defendants made repeated false and misleading statements about the company’s business metrics and financials. Among other things, defendants falsely represented that Sprint had received billions of dollars in benefits from merger synergies, that Sprint had improved its customer mix as a result of tightening credit standards, that the integration of the Sprint and Nextel cellular platforms was progressing as planned, and that the goodwill associated with the Nextel purchase was not impaired. Defendants continued to conceal the widespread problems plaguing Sprint until late 2007, when Sprint forced the company’s CEO and Chairman to “resign.”
On January 18, 2008, Sprint revealed severe subscriber problems and disclosed that it was evaluating a charge in the fourth quarter related to a goodwill write-down. That day, the company’s stock price dropped 24.8%, or $2.87 per share. Then, on February 28, 2008, Sprint disclosed that the company had recorded a goodwill impairment charge of $29.7 billion. As a result of these disclosures, in a little over six months, Sprint’s stock price plummeted almost 70%, from its class period high of $23.25 per share to less than $7.15 per share.
In addressing the merits of plaintiffs’ motion, the court – focusing largely on defendants’ challenges to the fraud-on-the market theory of reliance for the proposed class of bond purchasers – found that plaintiffs had “established by a preponderance of the evidence that the Sprint Bonds traded in an efficient market during the class period.” Therefore, the court explained, the “proposed class is entitled to the presumption of reliance afforded by the fraud-on-the-market theory.” As part of the ruling, the court appointed the West Virginia Investment Management Board, PACE Industry Union-Management Pension Fund and Skandia Life Insurance Company as class representatives.
“This is a significant victory for lead plaintiffs and the class as we prepare this case for trial,” said Brian O. O’Mara, a Robbins Geller partner. “We will continue our aggressive efforts to vindicate the rights of aggrieved Sprint investors harmed as a result of defendants’ misconduct.”
Bennett v. Sprint Nextel Corp., et al., No. 09-cv-2122-EFM-KMH, Memorandum and Order (D. Kan. Mar. 27, 2014).