Tyco Stock-Drop Settlement Gets Court OK

A federal judge in New Hampshire has given final approval of a $70.5-million settlement of a stock-drop suit against Tyco International.

U.S. District Judge Paul J. Barbadoro of the U.S. District Court for the District of New Hampshire issued two orders in the seven-year-old suit, one implementing the proposed settlement and the other setting attorney fees amounting to $21.1 million.

The suit alleged that a decrease in the value of the company’s shares meant participants ended up losing a substantial portion of their retirement savings. In their lawsuit, the employees charged that Tyco and its top officials also breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by lying to participants about the company’s financial condition and the risk characteristics of the company stock fund.

The suit alleged the company was negligent in continuing to feature company stock as a retirement plan investment option.

In addition to the funds to be paid by the company, an additional $325,000 will be paid by two former executives of Tyco who were defendants in the case. The case is Overby v. Tyco International Ltd., D.N.H., No. 02-CV-1357-B.

Barbadoro ruled in April that Tyco was not entitled to use an ERISA safe harbor defense in the case (see “Court Says 404(c) No Defense in Fiduciary Stock Suit”).

Equities Look Good for 2010

The stock market is poised to perform fairly well in 2010, according to portfolio managers at T. Rowe Price.

Speaking at a press briefing in New York City yesterday, John Linehan, co-director of U.S. Equities at T. Rowe Price, expressed modest optimism for the stock market. There is a lot of cash on the sidelines that will come into the equity market, which could be “significant fuel” for a market rally, he said.

He also noted that, as corporations have cut costs dramatically, earnings are looking good. However, Linehan noted that although the earnings growth might be comforting, it is coming from cost-cutting and not revenue growth. “Over time, it’s going to be revenue growth that causes earnings growth,” he said.

The U.S. stock market is in better shape than the economy, partly because many U.S. companies are growing outside of the U.S. However, for long-term sustainability in the equity market “we’re going to need durable economic growth,” Linehan said.

But don’t forget the power of the U.S. consumer. “Rumors of the demise of the U.S. consumer have been greatly exaggerated,” he said. He said not to underestimate the wealth effect; as wealth comes back, the affluent customer will spend more.

That tendency to spend when wealth is restored will also be evident in a lower savings rate. The savings rate will likely be corrected, going back down to around 3% in 2010, after shooting up to above 5%, according to Alan D. Levenson, chief economist at T. Rowe Price.

Despite the deep recession, Levenson forecasts sluggish growth for the economy next year (about a 2% rise in GDP). He also said he is more concerned about inflation than the consensus view.

It’s not totally clear in most market outlooks what will happen in 2010, but forecasts seem to be positive about the market and hopeful for economic growth—albeit slow. “The only thing I can give you with any degree of certainly is to expect the unexpected,” said Linehan.

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