DOJ probes Del Monte sale to private equity investors for antitrust violations

WASHINGTON, D.C. ― The U.S. Department of Justice has opened a probe into the $4 billion takeover of Del Monte Corp by private equity investors led by KKR and Co., according to court papers regarding an investor settlement over the transaction.

The department’s antitrust division “has been investigating the facts and circumstances surrounding the sale of Del Monte,” Stuart Grant, a lawyer for Del Monte shareholders, wrote in a Nov. 23 court filing. He said he has provided documents to the division and is cooperating with the investigation.

Calls to the Department of Justice, KKR and Del Monte were not immediately returned. Del Monte and KKR have said that the U.S. Securities and Exchange Commission had issued subpoenas for documents relating to the buyout.

Grant in an interview said the Justice Department did not identify a specific target of its investigation. In court papers, he mentioned the probe as part of a discussion of antitrust claims against KKR.

Grant is seeking approval of an $89.4 million class-action settlement among shareholders, Del Monte and its financial adviser Barclays Capital, a unit of Barclays Plc.

Shareholders accused Barclays of having a conflict of interest because it also provided financing to the KKR group.

The settlement has drawn opposition from a Cleveland pipefitter pension fund, which argued that shareholders are being asked to give up antitrust claims that might be worth hundreds of millions of dollars.

This fund has filed a federal lawsuit in California alleging that KKR and other private equity firms rigged bids to cap the price paid for Del Monte. It has until Dec. 8 to file an amended complaint after an earlier complaint was dismissed.

“It wouldn’t surprise me if they were looking for more information on what might be collusive bid-rigging,” said Craig Wildfang, a lawyer involved in the California lawsuit, referring to the Justice Department probe.

KKR has been involved in antitrust investigations before, having in 2006 and 2009 provided documents to the Justice Department as part of a government investigation into private equity firms, according to securities filings.

KKR and several other private equity firms are also defendants in a 2007 Massachusetts federal lawsuit. They are accused of colluding to lower the purchase prices of leveraged buyout targets such as software company SunGard Data Systems Inc and food service provider Aramark Corp.

Many lawyers in the California case are also involved in the Massachusetts case.A hearing to approve the Del Monte settlement is scheduled for Thursday in front of Judge Travis Laster in Wilmington.

Del Monte, Barclays to pay $89.4 million in settlement

SAN FRANCISCO ― Del Monte Corp. and Barclays Capital agreed on Thursday 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 stemming from the takeover have raised conflict of interest issues and struck at the core of the relationship between banks and companies they advise, making boards and bankers nervous about how they run auctions.

In the lawsuit, investors claimed 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. Banks helping to sell businesses frequently offer financing to buyers, 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, the investors’ lawyers said in a statement on Thursday.

Around $21 million of Del Monte’s payment is in lieu of fees due to Barclays, meaning the two parties will carry a roughly equal burden.

In a filing with the U.S. Securities and Exchange Commission, Del Monte and Barclays denied any wrongdoing.

“We are pleased that the parties have agreed to settle the litigation to avoid the expense, distraction and uncertainty of litigation. We believe that the sale process leading up to the merger achieved the best price reasonably available for Del Monte stockholders,” a Barclays spokesman said in an e-mail.

The settlement, subject to approval by Vice Chancellor J. Travis Laster, would resolve all litigation over the sale of Del Monte to the buyout group, the plaintiffs said. Their attorneys said the payout was one of the largest cash settlements on record in Delaware Chancery Court.

In February, Laster 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.

“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,” said Randall Baron, an attorney for the plaintiffs and a partner with the law firm Robbins Geller.