The Fresh Market's Board Under Fire in Lawsuit
NEW YORK CITY, NY - New York law firm Cravath Swaine & Moore has been accused in a shareholder lawsuit of "improperly steering" the $1.6 billion leveraged buyout of The Fresh Market, as first reported by The Financial Times. The sale was to Apollo Global Management and the company’s CEO, Ray Berry, who together won the bidding. However, foul play seems to have been involved, as the suit alleges that the law firm created the appearance of a fair sale to ensure that the sale would go to Apollo.
The suit was filed late last week by shareholders in the Delaware Court of Chancery, in which they accused Cravath of “lend[ing] a patina of integrity to a sham auction.” Cravath’s client was the Board of Directors for The Fresh Market. The Board has been sued by the retailer's shareholders for breaching its fiduciary duties in approving the deal with Apollo. That lawsuit, previously dismissed by the lower Delaware court and then reversed by the Delaware Supreme Court, led to the trial that is making news headlines this week.
Since then, additional documents and emails were discovered, which led to the allegations filed against Cravath and JPMorgan, The Fresh Market’s investment banker. Within those emails, Cravath was allegedly paid a $5.5 million fixed fee for its work on the transaction. Both are accused of “aiding and abetting” the Board’s alleged breach of duty.
In a Reuters report, more misconduct was brought to light, particularly regarding the relationship between the Berrys and Apollo. Apollo first reached out to The Fresh Market in 2015, during which the private equity fund worked with both Ray and Brett Berry on a side deal. In this side deal, Berrys would roll over the family’s 9.8 percent stake if Apollo bought out the company. If the rollover occurred, Apollo would have to expend less capital to take The Fresh Market private. For the Berrys, an estimated upside from the takeover could result in as much as $930 million.
According to the complaint, JPMorgan “knowingly participated with Ray Berry in helping him and Apollo acquire the company at an unfair price, for example by tipping Apollo as to the lack of competition such that Apollo could lower its offer below the price it was previously willing to pay.” The complaint also argues that JPMorgan helped manipulate The Fresh Market’s financial projections to make the final deal price more lucrative.
“We believe the claims against Apollo have no merit, and we intend to defend the case vigorously,” an Apollo spokesperson said in a statement.
Cravath, The Fresh Market, and JPMorgan have declined to comment.
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