Eaton to pay Meritor $500 million, avoid trial and possible $2.4 billion claim

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WILMINGTON, Del. (Bloomberg) -- Eaton Corp. dodged a potential $2.4 billion damage claim from Meritor Inc. by agreeing to pay $500 million to head off a jury trial that was set to begin today in federal court in Wilmington.

Meritor Transmission and affiliate ZF Meritor LLC sued Cleveland-based Eaton in 2006 for violating antitrust laws. A jury ruled in 2009 that Eaton damaged Meritor and gained 90 percent of the market for truck transmissions by offering “exclusive dealing contracts” and unfair rebates.

“We see this announcement as positive for buy-rated Eaton” with $500 million “far below” the judgment it might have been ordered to pay at trial, Timothy Thein, an analyst with Citi Research in New York, said in a note to investors.

“This is an important outcome for Meritor that delivers significant benefits to the company, our shareholders and our customers,” CEO Ike Evans said in a statement today. “We are successfully putting this lawsuit behind us.”

Pension funds

Meritor, based in suburban Detroit, expects to receive net proceeds of $209 million around July 15 and will use the money to fund its U.S. and U.K. pension plans, according to the statement. The company had sought more than $800 million in damages from this week’s trial, which would automatically be tripled under antitrust law, according to Meritor.

“It is in the best interests of Eaton shareholders to settle this matter,” CEO Alexander Cutler said in a statement.

ZF Meritor, based in Laurinburg, N.C., was a joint venture between Meritor and Germany’s ZF Friedrichshafen AG that lasted from 1999 to 2003.

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