Shareholders File Lawsuits Against Sprint

KANSAS CITY, Mo. – Sprint shareholders have filed at least six lawsuits over the company’s decision to combine its two tracking stocks into a single common stock, the telecommunications giant said Tuesday in a regulatory filing.

The suits were filed against Sprint Corp. and its directors by PCS common stockholders after the company announced Feb. 29 that it would combine the separate stocks under the FON symbol on the New York Stock Exchange.

One suit was filed in the Supreme Court of the State of New York. The rest were filed in district court in Johnson County, Kan.

The suits seek an injunction and monetary damages, Sprint said in its annual report with the Securities and Exchange Commission.

In 1998, the company created a tracking stock for its wireless business, Sprint PCS, which trades on the NYSE under the symbol PCS. Sprint, based in Overland Park, Kan., has just over 1 billion PCS shares and about 906 million FON shares outstanding.

PCS common stock will be eliminated and each share of PCS common stock will be converted into one-half share of FON common stock on April 23, 2004, leaving about 1.4 billion total shares outstanding after the recombination. Sprint plans to continue paying the same quarterly dividend of 12.5 cents on all FON shares.

When the recombination was announced, Sprint said it was expected to reduce earnings between 2 and 3 cents per share and reduce the company’s free cash by $200 million in 2004 and $300 million in 2005.

“We are confident that any lawsuit filed in connection with the recombination is without merit,” Sprint spokesman Dan Wilinsky said.

Sprint’s articles of incorporation allow that any time after Nov. 23, 2001, the tracking stocks could be recombined at the board’s discretion. He said the company conducted an extensive study to determine a fair ratio for converting PCS stock to FON stock.

“The board concluded that the resulting conversion ratio is fair to each class of shareholders,” Wilinsky said.

Telecommunications companies frequently created tracking stocks for their wireless units in the 1990s with the possibility of spinning them off in the future.

But concerns arose that executives were managing two entities with sometimes competing interests and that tracking stocks had become a way for executives to receive excessive compensation, said Brandon Rees, a research analyst for the AFL-CIO office of investment.

“There’s a concern about this, about tracking stocks in general,” he said. “Unwinding it in a way that is fair to shareholders, I suspect that may be what the lawsuit is addressing.”