IBM sued for talking up semiconductor business it couldn't give away

Firm alleges investors didn't realize Big Blue would need to PAY to have its chips hauled off

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A US public pension fund has filed a class-action lawsuit against IBM, claiming the company misrepresented the value of the semiconductor business it offloaded to GlobalFoundries in October.

The suit filed by the City of Sterling Heights Police & Fire Retirement System in Michigan accuses IBM of having inflated its own share price by valuing its chip manufacturing business at US$2.4bn, when it was actually worth substantially less.

To be precise, it turned out to be worth substantially less than nothing.

GlobalFoundries eventually took the business unit off IBM's hands, but only after IBM agreed to pay GlobalFoundries $1.5bn to help prop up operations while it tried to get the loss-making business back on track. At the same time, IBM wrote off a $4.7bn charge for the transfer.

The warning signs were there early on. Insiders familiar with the negotiations between IBM and GlobalFoundries said GlobalFoundries was only really interested in Big Blue's patents and talent. IBM's ageing manufacturing facilities, on the other hand, were said to be seen as having "little or no value."

The pension fund's suit alleges that no bidder was ever willing to pay more than around $1bn for IBM's chippery kit-and-kaboodle, contrary to the firm's representations to investors.

What's more, the suit claims that once shareholders realized IBM was actually going to take a bath on the transfer, the tech giant's stock tanked, erasing more than $18bn of market value in two days.

According to a report by Reuters, the Sterling Heights pension plan, which holds shares in IBM, is seeking class-action status on behalf of every investor who held the company's stock between April 17 and October 17, 2014.

In addition to IBM itself, the company's CEO Ginni Rometty, CFO Martin Schroeter, and controller James Kavanaugh are reportedly also named as defendants. ®