Suits were filed against UNP and certain officers and directors on behalf of investors who bought UPN stock between March 1997 and February 1998. These suits (later consolidated into a single class action lawsuit) alleged that UNP mislead the public about the progress of the merger and UNP's financial condition and that, as a result, the plaintiffs paid an inflated price for shares of UNP's stock.

Plaintiffs alleged damages of approximately $6.50 per share. This was the amount by which UNP stock dropped after it finally admitted the merger-related difficulties and reduced its quarterly dividend.

UNP shares peaked at $68 between March 1997 and February 1998 and traded as low as $36 over the following year.

The Outcome

A settlement of the class action suit was reached in late 2000. Under the terms of this settlement, plaintiffs received an average of $0.43 per share, or 7% of their original demand. UPN did not admit any fault or liability. The settlement fund totals $34,025,000, which sounds like a lot, but this figure represents less than 1% of the $4.04 billion UNP paid for Southern Pacific.

The Good News for Officers and Directors

Corporate officers and directors can take heart from this settlement. IT demonstrates that just because a merger or acquisition does not go according to plan and, as a result, the company's stock price drops, it does not necessarily mean that shareholders have an irrefutable claim against management for the total damages alleged.

We view this settlement as evidence that officers and directors who, in good faith, act in the best interests of the corporation they serve still enjoy significant legal protection from D&O suits.