The Del Monte effect

13 Apr 2011 By Lisa Lee

A judge’s condemnation of Barclays for how it handled the food company’s leveraged buyout established no new legal ground, but the case is still resonating widely. An investor just warned 99 Cents Only to watch its step when hiring advisers. Del Monte looks destined for M&A lore.

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99 Cents Only Stores, which is the subject of a $1.3 billion management buyout offer, was asked by one of its investors, FBR Fund Advisors, to hire investment banks and law firms that had no prior relationship with the acquirers or any other conflict of interest to advise a special committee of the company's board.

"Further, we expect that as part of any engagement all the advisers to the Special Committee should agree that they will not participate in, or support, any particular bid or offer," FBR wrote in a letter that was disclosed in a filing with securities regulators on April 11.

The Schiffer/Gold family, in combination with private equity firm Leonard Green & Partners, has offered to buy 99 Cents Only for $19.09 a share. The board's special committee has retained Lazard and Morrison & Foerster to advise it.

A Delaware judge on Feb. 14 criticized the role of Barclays, which advised Del Monte while also providing deal financing for the buyer, Kohlberg Kravis Roberts, in a $5.3 billion management buyout of Del Monte. "Barclays secretly and selfishly manipulated the sale process to engineer a transaction that would permit Barclays to obtain lucrative buyside financing fees," the judge wrote. Barclays was not a defendant in the case at the time of the ruling.

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