Weiss v. Mentor Graphics Corporation

The Situation

Mentor Graphics acquired Interconnectix in an August 1996 stock transaction. A month later, Mentor publicly warned that 3Q96 earnings would be just above break-even. Plaintiffs, former Interconnectix managers, sued under Rule 10b-5, alleging that Mentor officers had fraudulently misrepresented to them in negotiations that the Company would achieve 3Q96 results in line with analyst expectations. At trial, their expert claimed damages of $3.50 per Mentor share received. He measured this as price drop over the three days after the earnings pre-announcement. On cross, he conceded that the market for Mentor stock was efficient.

NERA's Role

NERA economist Marcia Kramer Mayer testified for defendants. Unlike plaintiffs’s expert, she conducted an event study to measure stock price reaction to the news. She also limited the "event window" to a single day, finding that significant stock price movements ceased after that point. With these adjustments, her measure of abnormal price drop was $3.10. Relying on the Skinner-Sloan published academic model of stock price response to earnings surprise, Dr. Mayer then parsed the $3.10 to estimate stock price reaction to a hypothetical disclosure, on the eve of the acquisition, of the earnings that Mentor was internally forecasting at that time: an amount much closer to analyst estimates than to actual results. She concluded that the alleged untimely component of the abnormal stock price drop was $1.42. This was her opinion of damage per share in the event of liability.

The Result

The jury found for defendants.