Barclays Capital and Del Monte have agreed to pay nearly $90m to settle a shareholder lawsuit related to conflicts of interest surrounding the buy-out of the food producer last year.
The class-action lawsuit alleged that Barclays’ role providing debt funding for the buyers meant its advice to the company during its sale process was conflicted.
Barclays both advised Del Monte on its sale to KKR and was among the banks providing financing to the buyer consortium of KKR, Vestar Capital Partners and Centerview Capital.
Barclays was added as a defendant to the case in February after Judge J. Travis Laster in February issued a strongly worded opinion criticising the bank’s conduct in the case. All the defendants have denied wrongdoing in the case.
“We are pleased that the parties have agreed to settle the litigation to avoid the expense, distraction and uncertainty of litigation,” Barclays said on Thursday. “We believe that the sale process leading up to the merger achieved the best price reasonably available for Del Monte stockholders.”
Del Monte will pay $65.7m of the $89.4m total, while Barclays will pay $23.7m of the settlement.
The sum is an unusually large settlement for deal-related cases, said legal experts, and is among the largest cash totals awarded in Delaware.
Barclays’ pay-out exceeds the amount it earned in advising Del Monte, according to Judge Laster’s February opinion. The bank was paid fees of $23.5m in its capacity as sellside adviser. It was also set to earn up to $24m related to its buy-side financing role, the judge added.
Del Monte on Thursday said in a filing that part of its payment would come from “previously unpaid merger-related fees”, which were said by people familiar with the matter to be about $21m.
In his February opinion, Judge Laster argued that Barclays’ dual role “tainted the advice it gave and the actions it took” and suggested the board had failed to exercise proper oversight of its adviser.
Judge Laster also suggested that Barclays should not have run the company’s go-shop, in which Del Monte had 40 days to seek out a higher offer for the company, and had overstepped its bounds in steering competing bidders into collaborating with each other.
The February decision prompted a review of practices around Wall Street as other investment banks sought to guard against similar litigation from shareholders.
While rivals were quick to call Del Monte a special case, it was not unusual on Wall Street for a sell-side adviser to seek extra fees by providing financing to private equity buyers in the same deal.
Del Monte agreed to sell itself to the private equity groups in November 2010 for $19 a share, a 40 per cent premium to where the group’s stock had been trading over the previous three months.
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