Del Monte Corp. and Barclays Capital have agreed to pay $89.4 million to settle a lawsuit that claimed they had not acted in investors’ best interests in the food company’s $4 billion takeover. Lawsuits arising from the takeover have raised conflict of interest issues. The relationship between banks and companies they advise was at issue. This had to concern bankers and bank boards about how they run auctions. In the lawsuit, investors alleged that Barclays, which advised Del Monte on the sale, had a conflict of interest because it also arranged financing for the private equity buyers led by KKR and Co. As you may know, banks helping to sell businesses frequently offer financing to buyers. I have learned that this practice is known as “staple financing.”
Del Monte will contribute $65.7 million and Barclays Capital, a unit of Barclays Plc, will pay $23.7 million to Del Monte’s shareholders. Around $21 million of Del Monte’s payment is in lieu of fees due to Barclays, resulting in the two parties bearing a roughly equal burden.
The settlement is subject to court approval and, if approved, will resolve all litigation over the sale of Del Monte to the buyout group. This settlement is said to be one of the largest cash settlements on record in Delaware Chancery Court. In February, the Court delayed a shareholder vote on the deal after accusing Barclays of “secretly and selfishly manipulat(ing) the sale process to engineer a transaction” to allow Barclays to collect large financing fees. Del Monte hired boutique investment bank Perella Weinberg to look for superior bids after the February ruling, but none emerged. Randall S. Baron, a former prosecutor, and a partner with the San Diego law firm of Robbins Geller, was the lawyer for the Plaintiffs. He observed:
This case has sharply reined in certain practices within the investment banking community, where many financial advisers regularly gamed the M&A process through double-dip engagements.
If anybody wonders why ordinary citizens are protesting all they have to do is review all of the massive wrongdoing on Wall Street. In my opinion, we are very close to total dissatisfaction with how the big banks have been operating and also with how weak government regulation has been. The case is In Re Del Monte Foods Company Shareholders Litigation, pending in the Delaware Chancery Court.
Source: Insurance Journal
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