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Industry News

Lawsuit costs Homestore $23 million

August 13, 2002

But settlement puts $35 million in unrestricted cash coffers

Inman News Features

Homestore (NASDAQ: HOMS) and MemberWorks (NASDAQ:MBRS) have reached a settlement in the lawsuit that MemberWorks brought over Homestore's purchase of former parent company iPlace. The lawsuit alleged securities fraud and other causes of action.

The settlement calls for Homestore to pay $23 million to the plaintiffs. MemberWorks said it will receive approximately $19.2 million of that total, leaving approximately $3.8 million to be paid to certain other former iPlace shareholders. The settlement is subject to court approval, according to MemberWorks.

Homestore said it recorded a $23 million liability and a charge to its second quarter operating results, which will be released today.

The company in the third quarter will record a $58 million reduction in restricted cash and a $35 million increase in cash and cash equivalents. Homestore at the close of the second quarter had nearly $65 million in cash and cash equivalents available to fund operations, plus $151 million in restricted cash, according to a company statement.

Homestore CEO Mike Long said the settlement was in the interest of the company's customers, employees and shareholders and that it would increase liquidity and resolve disputes unrelated to the company's ongoing operations.

Westlake Village, Calif.-based Homestore operates the National Association of Realtors' official homes for sale Web site and other real estate Web sites.

The lawsuit arose when Homestore sold to Experian for $130 million in cash. Homestore had purchased as part of its acquisition of iPlace. MemberWorks was the former majority stakeholder of iPlace.

MemberWorks requested an injunction to halt Homestore's sale of The injunction was denied. But the judge forced Homestore to set aside $58 million of the $130 million in a constructive trust pending the outcome of the litigation. The settlement will enable Homestore to recapture $35 million of unrestricted cash from the trust.

Stamford, Conn.-based MemberWorks provides consumer and membership services through affinity marketing and online channels.

MemberWorks said it will record the settlement as a one-time gain in the third quarter and use the money to buy back its own stock.

MemberWorks CEO Gary Johnson said the company recovered much of the value lost due to the decline in Homestore's stock.

"As a result of this settlement, our net gain from the sale of iPlace is now approximately $51 million," Johnson said.

Copyright: Inman News Service

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