The Corporate Law Group

Crew Sues

On March 1, 2011 41 million shares, or about 64%, of J. Crew voted in favor of a $3 billion LBO by two private equity firms, TPG Capital and Leonard Green & Partners. 13 million shares were voted against, and the sales process was called flawed by some. Only a couple of dozen people attended the special shareholder’s meeting and it was over in four minutes. And a group of shareholders sued claiming breach of fiduciary duty in not analyzing the bid properly. Well, now, J. Crew has sued those same shareholders, including the New Orleans Employees Retirement System, claiming that they breached a settlement agreement. Following the original shareholders case, J. Crew had agreed to extend a shop period to see if there was a better offer available (as well as paying the shareholder’s and their lawyers $10 million and reducing a break up fee if the deal didn’t close). No better bids arose. Most targets in acquisitions don’t sue their own shareholders so this is a bit of a novelty. Now, J. Crew is asking the court to enforce a memorandum of understanding claiming that the shareholder’s lawyers are trying to change the deal at the last minute despite their earlier agreement. It looks to us like the lawyers figured out belatedly that their payday wasn’t big enough. Boo!

Paul Marotta

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