Steel Connect, Inc. (NASDAQ:STCN), a company specializing in business services, has reached a settlement agreement in a class and derivative action lawsuit. The lawsuit, filed in the Delaware Court of Chancery under the title Reith v. Lichtenstein, et al., cited alleged fiduciary breaches by certain current and former directors and major stockholders. The parties involved have agreed to a Stipulation and Agreement of Compromise, Settlement and Release to resolve the dispute.
The settlement, which is pending court approval, includes a $6 million payment by the defendants' insurers to Steel Connect. This amount, after the deduction of court-approved legal fees and expenses, will be distributed to common stockholders per the terms of an amended Stockholders Agreement.
The settlement also mandates the adoption of certain corporate governance enhancements, including a review process for compensation clawbacks and a reduction in the threshold for reviewing related party transactions.
The court has scheduled a hearing on December 13, 2024, to consider the approval of the Proposed Settlement and related matters. It is important to note that the settlement's approval is not guaranteed. If the court approves the settlement, it will result in the dismissal of the lawsuit with prejudice and the release of all claims against the defendants as outlined in the Stipulation.
Under the terms of the Proposed Settlement, Steel Partners Holdings L.P. and its affiliates, as well as current directors and officers of Steel Connect, have waived their rights to any portion of the distribution related to shares held as of May 1, 2023, or issuable upon conversion of convertible instruments. This waiver is intended to ensure a fair distribution to other common stockholders.
InvestingPro Insights
Steel Connect's recent legal settlement comes amid a complex financial landscape for the company. According to InvestingPro data, Steel Connect has a market capitalization of $66.79 million USD, with a notably low P/E ratio of 3.17. This low valuation is further emphasized by the company's price to book ratio of 0.44, suggesting the stock may be undervalued relative to its assets.
InvestingPro Tips highlight that Steel Connect holds more cash than debt on its balance sheet, which could provide financial flexibility as it navigates the aftermath of the lawsuit. Additionally, the company's high shareholder yield and strong free cash flow yield implied by its valuation could be attractive to investors looking for potential value opportunities.
It's worth noting that while Steel Connect has seen a significant price decline over the last three months, with a -21.32% total return, the company remains profitable over the last twelve months. This profitability, combined with the company's liquid assets exceeding short-term obligations, may help Steel Connect weather the financial impact of the settlement.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Steel Connect, providing a deeper understanding of the company's financial position and market performance.
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