Will the Nebraska AG lawsuit against REZI/ADI settle for less than $25M?

The Nebraska consumer protection baseline strongly supports sub-$25M resolution — state AG consumer protection cases against corporate defendants typically settle in the $5-20M range. The ADI separation reaffirmation (H2 2026) sharpens the settlement incentive because management needs a clean Form 10, and the corrected leverage (3.9x vs. Spruce Point's 5.5x) confirms REZI has capacity to absorb a nuisance settlement. The absence of any second AG state action removes the cascade precedent incentive that might push AG Hilgers to hold out for a larger headline number.

Management's complete silence on the Nebraska lawsuit during Q4 earnings is a double-edged signal: it could reflect active settlement negotiations (favoring <$25M) or advice of counsel to stay quiet while AG Hilgers builds the case (favoring prolonged litigation or larger settlement). The Hikvision/Dahua national security angle distinguishes this case from a typical consumer protection suit, giving the AG stronger public justification to pursue a larger settlement or trial. I weight slightly above 50% because the separation timeline pressure is real, but the exceptional nature of the case prevents more than a modest upgrade.

The prior prediction of 52% was well-calibrated given limited information, and new earnings data provides only incremental signals. The separation incentive (H2 2026 reaffirmed) adds genuine settlement pressure — REZI management would rationally prefer a resolved litigation line item in the Form 10 vs. an open 'reserve undisclosed' footnote that complicates SpinCo valuation. However, AG Hilgers' enforcement pattern (Temu, Lorex) suggests he negotiates aggressively and may demand $25-50M given the China-linked public safety narrative. The 10-month remaining window is sufficient for either a quick settlement or a trial-bound trajectory — timing uncertainty caps conviction.

Q4 earnings shifted this market modestly in the YES direction. The H2 2026 separation reaffirmation is the most actionable new signal — management needs this lawsuit closed before the Form 10 is filed (H1 2026) and before the separation completes (H2 2026). That creates a defined settlement window in Q1-Q2 2026 when REZI's negotiating incentive is highest. No second AG action eliminates the cascade-precedent leverage that would give AG Hilgers reason to push above $25M for publicity value.

The base rate for state AG consumer protection lawsuits settling under $25M is the dominant factor, and new information only marginally updates it. REZI's financial strength (record EBITDA, corrected leverage) actually creates a nuanced two-sided effect: it increases settlement capacity (favors YES) but also increases AG's belief that REZI can absorb a larger demand (may push AG to seek more). The silence on earnings is consistent with either trajectory and provides no directional evidence. Maintaining near 52% with a slight upward nudge from separation dynamics.

The market question has an embedded timing risk: resolution requires both settlement AND settlement below $25M by Dec 31, 2026. If discovery runs into H2 2026, a trial date could be set for 2027, which alone resolves this NO regardless of ultimate liability. The separation timeline (H2 2026) actually creates an interesting race condition — if Form 10 is filed before settlement, REZI loses its strongest negotiating incentive and the lawsuit becomes a SpinCo problem. This creates a Q1-Q2 2026 settlement window. The slight upward nudge from separation dynamics is real but modest.

Nebraska AG consumer protection cases typically settle below $25M, and REZI's financial capacity is strong (record EBITDA $833M). The ADI separation creates a clear incentive to settle before the Form 10 filing. No second AG action removes cascade-precedent pressure on AG Hilgers.

Minimal new information in Q4 earnings keeps this near the prior 52% estimate. The national security framing of the Hikvision/Dahua lawsuit gives AG Hilgers political motivation to seek a larger settlement or public trial, which could result in a NO outcome through either exceeding $25M or missing the December 2026 deadline.

The combination of typical state AG consumer protection settlement patterns, REZI's financial capacity, and the separation-driven settlement incentive all support a slight upgrade from 52%. The absence of any negative signals (no second AG, no 'vigorously defending' disclosure, no court advancement news) keeps the prior assessment intact with modest upward adjustment.