POKER machine maker Aristocrat Leisure is understood to have agreed to pay $150 million to $170 million to settle a landmark class action brought by shareholders who argued the company had failed to keep the market fully informed six years ago.
The payout, which will be confidential until it is disclosed to the Federal Court in June, will be the largest by an Australian company to its investors.
The settlement was announced after the market closed yesterday, and at the 11th hour of the case, as Federal Court judge Margaret Stone was nearing a decision in the long-running and bitterly fought legal action.
If it is approved by Justice Stone at a hearing in about six weeks, it is understood the settlement payout will largely be funded by Aristocrat's insurers.
Although the company has never said if it had insurance cover for the case, yesterday it said it would cost the company a net $40 million after tax, not including a hefty legal bill. It added that this would be funded through its cash and credit facilities.
In the early stages of the case, Aristocrat played down the potential damages bill, saying it could be as little as between $10 million and $20 million, but this figure blew out after an expert gave evidence during the trial.
Aristocrat's law firm, Maurice Blackburn, said last year it could cost the company $190 million. Deutsche Bank analyst Mark Wilson had predicted $200 million. Under the worst-case scenario, Aristocrat could have been ordered to pay $396 million.
Shareholders eligible for the class action had bought shares between February 2002 and May 2003, when Aristocrat admitted it had overstated its profits and profit expectations.
The figures were inflated after the company hastily booked sales of machines to South American customers before it had been paid.
When the money failed to materialise and profit forecasts were downgraded, the company's shares plunged by almost 75 per cent. IMF, a listed litigation funder that has funded the cost of running the lawsuit since it was initiated in March 2004, is understood to have spent about $7 million on legal fees.
It told the market yesterday that it would make a profit of $22 million on the settlement from revenue of $37 million.
Neither a Maurice Blackburn partner, Bernard Murphy, nor Aristocrat would comment on the size or terms of the settlement yesterday.
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