Under Armour Will Pay $434 Million to Settle Shareholder Lawsuit

By Lorraine Mirabella, Baltimore Sun (TNS)

Under Armour will pay $434 million to settle a lawsuit in which shareholders in 2017 said they suffered significant losses as a result of false and misleading statements about the company’s prospects.

The securities fraud class-action lawsuit, initially filed in 2017 in U.S. District Court in Baltimore, covers purchasers of publicly traded shares of Under Armour from Sept. 15, 2015, to Nov. 1, 2019. It accused the Baltimore-based sports apparel maker and some of its officers of misrepresenting the company’s sales and growth during a period of rapid expansion in a drive to pursue competitors Nike, Reebok and Adidas.

The sports apparel brand has denied the accusations and admitted no wrongdoing in the settlement, which was announced late Friday and requires court approval.

“We firmly believe that our sales practices, accounting practices, and disclosures were appropriate, and deny any wrongdoing in this case,” Mehri Shadman, Under Armour’s chief legal officer and corporate secretary, said in a news release.

Shadman said the settlement will allow the company to move on from the 7-year-old case, providing certainty at a time when it has set new priorities. In May, Under Armour announced its second restructuring since 2017, designed to manage costs and boost the brand and shareholder value.

The lawsuit questioned disclosures and accounting practices related to sales between the third quarter of 2015 and the fourth quarter of 2016.

It said that executives, including founder Kevin Plank, who was CEO at the time and has returned to that role after four years, “failed to disclose that Under Armour’s revenue and profit margins would not be able to withstand the heavy promotions, high inventory levels and ripple effects of numerous department store closures and bankruptcy of The Sports Authority.”

Under Armour and Plank entered into a memorandum of understanding with plaintiffs Thursday.

“We are pleased to have helped secure this exceptional outcome,” said a spokesperson for the North East Scotland Pension Fund, the lead plaintiff, in a news release. “We decided that stepping forward to lead the litigation and hold defendants accountable was an appropriate exercise of our stewardship role, and we welcomed the opportunity to do so.”

Under Armour said it plans to pay the settlement through cash on hand and/or by drawing on a $1.1 billion revolving credit facility. As of March 31, the company had $859 million of cash and equivalents. It also has $100 million in litigation reserves related to the case, according to the news release.

The company announced the settlement after the stock market closed Friday. Shares of Under Armour remained unchanged Friday at $6.99 each.

If approved, the settlement would resolve all claims in the case against Under Armour and other defendants.

“Our client was determined to secure meaningful accountability on behalf of injured investors,” said Sam S. Sheldon, a partner and trial team member at Robbins Geller Rudman & Dowd, the law firm representing the plaintiff. “Although the case was a battle at every step, we are glad to have helped secure a significant recovery for investors.”

Under Armour has also agreed to two governance changes for a specified period. The company will continue to separate the roles of board chair and CEO for at least three years from the date the settlement is approved. And Under Armour agreed that all restricted stock or restricted stock units given to the CEO, chief financial officer and chief legal officer during the three years will come with performance-based vesting conditions set by a board committee.

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