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GEC deal faces $1bn US law suit

GEC's pounds 2.8bn takeover of the US telecoms equipment supplier, Fore Systems, ran into trouble last night after a group of shareholders in the American company launched a $1bn class action.

The legal suit, filed in the District Court of Western Pennsylvania, alleges that Fore Systems' senior executives breached their duties to other shareholders by granting themselves $23m in stock options in advance of the deal being agreed with GEC.

The complaint claims that this manoeuvre to "grease the skids" created a privileged class of shareholders in contravention of the "all holder, best price" rules.

If GEC is forced to offer the same terms to all Fore Systems shareholders, it could increase the cost of the bid by $1bn (pounds 625m).

GEC is paying $35 a share for Fore Systems. The class action alleges that the top executives of the company were granted share options at prices ranging from $13.44 to $20.56 during the takeover negotiations with GEC.

GEC was not available last night for comment on the class action. When the deal was unveiled last month, Lord Simpson, the chief executive of GEC, said he expected to complete the takeover by the summer.