A federal judge has approved a settlement that calls for Time Warner, the world's largest media company, to pay $2.65 billion to settle charges that AOL overstated its revenue to gain approval for the companies' megamerger.
Time Warner agreed last August to the settlement with a group of shareholders who accused AOL of inflating its revenue by $1.7 billion between January 1999 and August 2002.
U.S. District Court Judge Shirley Wohl Kram approved the settlement on Thursday.
The article states that Time Warner has to pay this to a group of stockholders. This seems to be counter-productive. Meaning, we didn't make more money because AOL misstated their earnings so we want you to pay us out of your pocket to compensate us. Won't this drive stock prices down?
I hope these shareholders sold there stock already :)
Its more of a distribution of money question than value of overall shares. When a company like AOL misstates earnings a large number of people are compelled to invest, driving up the share value. The primary shareholders benefit from this much more than the general shareholders. In other words, by misstating profits a few shareholders profit by selling overvalued shares to a large number of people.
If the deal was done fairly the investors were repaid for their shares. This is not bad for the people who got duped, but yes, its not good for the overall share value of AOL. Its a general rule that bad managment is not good for share value.