Del Monte Foods Co. and Barclays Plc (BARC) agreed to pay $89.4 million to settle investor lawsuits over the buyout of the pet-food maker by a group of private-equity firms led by KKR & Co.
Investors in Del Monte, maker of Meow Mix cat food and Milk Bone dog biscuits, will get at least 30 cents more a share to resolve claims they weren’t paid enough in the $19-a-share buyout, Stuart Grant, a lawyer for the investors, said today in an interview. A Delaware judge must approve the accord before it becomes final.
“Del Monte has entered into the proposed settlement to eliminate the uncertainties, burden, and expense of further litigation,” the San Francisco-based company said today in a U.S. Securities and Exchange Commission filing. The companies denied any wrongdoing under the accord.
The settlement also resolves investors’ claims that London- based Barclays, which served as Del Monte’s financial adviser while providing some financing for the buyers, had conflicting interests in the $5.3 billion deal. The private-equity group led by New York-based KKR included Vestar Capital Partners and Centerview Partners LLP.
Barclays was paid $23.5 million to advise Del Monte and as much as $24 million for providing loans to the buyers, according to investors’ suits filed in Delaware Chancery Court in Wilmington.
“We are pleased that the parties have agreed to settle the litigation to avoid the expense, distraction and uncertainty of litigation,” Kerrie-Ann Cohen, a Barclays spokeswoman, said in an e-mailed statement. “We believe that the sale process leading up to the merger achieved the best price reasonably available for Del Monte stockholders.”
Kristi Huller, a KKR spokeswoman, and Chrissy Stengel, a Del Monte spokeswoman, both declined to comment on the accord.
Barclays rose 12.4 pence, or 8 percent, to 167.85 pence in London trading today. KKR climbed 20 cents, or 1.9 percent, to $10.59 in New York Stock Exchange composite trading.
In February, Delaware Chancery Court Judge Travis Laster ordered Del Monte to delay a shareholder vote on the deal so investors could consider whether to back it in light of disclosures about Barclays’s dual roles.
“Barclays took a pretty big PR whipping over this case, so I guess they may have wanted to settle to get this off the radar screen,” Larry Hamermesh, a professor at Widener University’s law school in Wilmington who specializes in corporate law, said in a telephone interview.
Laster’s ruling has dissuaded Barclays and other investment banks from offering so-called sell-side financing for public buyouts, he said.
“They don’t want any other judges examining whether there are potential conflicts in these deals,” Hamermesh said.
Since the Del Monte opinion, no firm has offered sell-side financing for a U.S. public company buyout valued at more than $1 billion, according to data compiled by Bloomberg. In the previous 2 1/2 years, it was offered about 40 percent of the time for deals of that size.
At least nine major investment banks, including Barclays, have reviewed their lending practices, people familiar with the matter said last month. They declined to be identified because the discussions are internal.
Randall Baron, one of the lawyers who represented an Illinois-based pension fund that challenged the Del Monte buyout, said the settlement “delivers to Del Monte’s shareholders the added premium they rightly deserved.”
“We are gratified that our litigation sparked a pullback among the major banks from advising parties on both sides of a transaction,” Baron, a partner in the San Diego-based law firm Robbins Geller Rudman & Dowd, said in a statement.
Del Monte will pay $65.7 million of the settlement while Barclays’s portion will be $23.7 million, according to the statement. Del Monte’s portion of the settlement includes more than $20 million in fees it owed to Barclays for work done on the buyout, according to the pension fund’s lawyers.
Investors’ legal fees will be covered as part of the settlement, Grant said. Laster will decide how much the attorneys will receive from the $89.4 million fund.
The accord “is a great result for stockholders, not only those holding shares in Del Monte, but all public equity holders of companies facing M&A transactions,” said Grant, a partner in Wilmington-based law firm Grant & Eisenhofer.
Some Del Monte shareholders sued in December seeking to stop the KKR-led buyout, claiming the deal was structured to discourage other offers. Shareholders also alleged Barclays executives deceived Del Monte officials about the bank’s dual role in the deal.
Lawyers for Barclays countered in court filings that there was no evidence the bank’s status as one of nine lenders involved in the acquisition compromised its officials’ objectivity in evaluating the deal’s fairness.
Del Monte investors approved the KKR-led buyout in March. Of shareholders who took part, 99 percent voted in favor, Del Monte said.
The buyout gave the KKR group access to Del Monte’s pet- food business, which has more than doubled sales in the past four years. Del Monte also sells packaged fruits and vegetables and Contadina canned-tomato products.
The case is In re Del Monte Foods Co. (DLM) Shareholder Litigation, CA6027, Delaware Chancery Court (Wilmington).
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