Street Elated Over AHP's Fen-Phen Settlement

Shares of American Home Products (AHP Quote) surged almost 8% Thursday after the company offered to pay up to $3.75 billion to people who took the popular diet combination fen-phen.

The company said it would take a $4.75 billion pretax charge, equivalent to $2.51 per share, but the terms of the proposed settlement offer left its finality undetermined. Still, the Street had expected a costlier settlement of the thousands of lawsuits against the company. Shares of AHP closed at 48 11/16, up 3 9/16 for the day, the highest price since Aug. 5, six days before the company paid a 22-cent dividend.

Terms of the offer looked favorable for the company compared to "the market expectation of $5 billion to $10 billion for the total liability," says Ajay Bansal, who has a neutral rating on the stock for Mehta Partners. "This was a big uncertainty" that had driven the stock price down, he said. ...