Why Shares of Meritor Inc. Plunged Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of industrial supplier Meritor Inc. fell 12% today after the company reached a settlement in an antitrust case.

So what: Meritor sued Eaton Corporation in 2006 for violating antitrust laws, and a trial was expected to start today in Delaware. But the two companies agreed to settle, with Eaton paying $500 million, of which $209 million is expected to be the net proceeds to Meritor.  

Now what: Shares dropped because the potential payout if Meritor won was $2.4 billion, the damage claim of the lawsuit. Clearly investors had priced in a bigger settlement or trial win in the case. The number might not be what investors expected, but it does reduce risk that Meritor could lose the case; so, in the long term it's not all bad news for shareholders, but the sell-off was sharp and the company will need to hit earnings targets to live up to its current valuation.

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The article Why Shares of Meritor Inc. Plunged Today originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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