Disney, Wall St. Raider to Pay Greenmail Settlements : Owners of Stock to Get $45 Million

Wall Street raider Saul Steinberg and Walt Disney Co. agreed today to a $45-million settlement of two stockholder suits over the company’s 1984 buyout of Steinberg’s 11% stake in Disney.

Lawyers on both sides said that they knew of no other instance in which money has been recovered in a so-called “greenmail” case. Greenmail is commonly used to refer to a company’s buying back stock at a premium price to get rid of an unwanted suitor.

Steinberg’s publicly owned company, Reliance Group Holdings, announced that its own share of the $45 million cash being paid by defendants is $20.8 million. The company said it would take a pretax charge for that amount in the second quarter.

By contrast, Steinberg had collected $59 million in profit and expenses in selling out to Disney.

Although the total value of the two legal settlements was put by plaintiffs at $89.5 million, sources confirmed Reliance’s figures that defendants were paying a net total of $45 million in cash.

The case, which involved claims for more than $500 million, was in the third week of a jury trial when the settlement was announced by Judge Abby Soven in Los Angeles Superior Court.

Soven read a joint statement from the parties stating that the settlement was not an acknowledgement of any wrongdoing by any defendant.

Further, the parties said, the settlement “contemplates a finding by the court” that the 11 Disney directors in 1984, who were defendants with Steinberg, “acted in good faith and in what they believed to be the best interests of the company.”

J. Michael Hennigan and William Lerach, two plaintiffs’ attorneys with key roles in the trial, said they think the settlement could have a deterrent effect on the practice of greenmail.

“It sends a warning,” Lerach said.

“I assume it will have an effect. Will it stop it? I doubt it,” Hennigan said.

The parties said they agreed not to give complete details of who was paying into the $45-million cash settlement fund, which will include lawyers’ fees and expenses. However, several attorneys said the terms of the settlement would allow the defendant directors to be indemnified by the company and its insurers.

The largest part of the $45-million cash pot, $29.5 million, will go to settle a class-action suit by former Disney stockholders who sold their shares in the seven months immediately after the buyout of Steinberg. Disney’s stock price plunged to about $45 a share from about $65 in that period.

A large number of these shareholders are professional Wall Street traders and arbitragers.

The Disney company itself will receive a small share of the cash, because one of the two suits is a “derivative action” brought on its behalf by shareholders who have held their stock from 1984 to the present.

The announced settlement of the derivative suit would entitle Disney to $45 million in cash, plus $15 million in “additional economic benefits attributable to the withdrawal of a cross-claim by Reliance against Disney.” However, the agreement among the defendants involves use of $29.5 million from the derivative suit to pay the class-action settlement.