Holders Claim ‘Inaccurate Financial Information’ : Westwood One Hit by Class-Action Suits

Westwood One, the nation’s second-largest operator of radio networks, disclosed Tuesday that stockholders filed three class-action suits against it last Thursday. The firm’s stock lost more than 25% of its value in a single day’s trading earlier last week.

The Culver City company said the “identical” suits alleged that persons who bought its stock between Jan. 12 and May 31 “received inaccurate financial information.”

A Westwood One spokesman said the allegations were “completely baseless and will be vigorously defended.” The company said the three plaintiffs own a total of 550 of the firm’s 14 million shares. The suits were filed in U.S. District Court in Los Angeles.

Norman J. Pattiz, chief executive and controlling stockholder of the publicly traded company, founded Westwood One in 1974 as a producer of rock and other special programming for radio stations.

After meeting success, the company made a major entry into the radio network business by buying the Mutual Broadcasting System for less than $20 million in late 1985, not long after going public.

Major Stock Offering

Last August, the firm made another huge move by buying all three NBC radio networks for $50 million in cash plus warrants to buy 1 million Westwood common shares at $36.40 each. The purchase added about 425 affiliated radio stations to the 860 obtained in the Mutual deal.

Just last April, Westwood One raised more than $53 million by selling about 2.5 million shares at $21.25 each in a new stock offering. Of these, 500,000 shares were sold on behalf of Pattiz, who controls the company through ownership of 98% of its Class B stock.

The company said its underwriters for the stock offering were also named in the class-action suits. The investment firms of Hambrecht & Quist and Merrill Lynch Capital Markets have been listed as lead underwriters for the offering.

A large part of Westwood One’s 14 million shares have been held by institutional investors such as pension funds, some of which apparently sold large holdings on Tuesday, May 31, after being taken by surprise by bad tidings on the company’s expected second-quarter profits.

The firm’s stock that day plummeted to $14.25 a share from $19.50 in national over-the-counter trading. Nearly 3 million of Westwood’s shares changed hands.

That day provided the first trading opportunity after the firm put out a public statement late Friday, May 27, after the close of trading for the three-day Memorial Day holiday weekend.

Poor Ad Market Cited

The statement said Westwood anticipated lower earnings for its just completed second fiscal quarter. The company did not give specific numbers but said its revenue was running about 6% behind the 1987 pace for the first two months of the quarter. The company had reported $4.2 million in net profit on $35.4 million in revenue for the second quarter ended May 31, 1987.

In the firm’s statement on May 27, William Battison, president and chief financial officer, blamed the drop in estimated profits on “the very soft national advertising marketplace that has affected most media” as well as effects of the protracted strike by the Writers Guild.

Westwood’s stock closed Tuesday at $13.50 a share, down 12.5 cents, with 283,400 shares traded.