Judge Delays Del Monte Sale, Chastises Barclays – CORRECTED/UPDATED

Just when we thought the sale of Del Monte was a done deal, a Delaware judge has stalled the sale.

Vice-Chancellor J. Travis Laster of Delaware Chancery Court delayed the shareholder vote on the sale of Del Monte to a KKR-led group until March 7. Laster also enjoined Del Monte and its PE buyers from enforcing a no-shop, which prevents the company from seeking out higher offers (this means Del Monte can search out higher offers).

Lest anyone forget, KKR led a group, which included Centerview Partners and Vestar Capital Partners, in November to acquire Del Monte for $3.5 billion. A shareholder vote had been expected to occur today but plaintiffs sought a preliminary injunction to postpone the vote for 40 days. Defendants named in the lawsuit include KKR, Centerview, Vestar and Del Monte’s board.

Barclays isn’t named as a defendant but Laster, in a 56-page ruling, chastised the investment bank for “secretly and selfishly” manipulating the auction so that it could obtain “lucrative buy-side financing fees.” Barclays advised Del Monte in the sale and also provided debt financing for the buyers.

(UPDATE: Barclays told peHUB sister news service Reuters that it “strongly disagrees with characterizations that are based on an incomplete factual record.”

Barclays said it contacted 53 potential buyers “in an extensive, robust, and public sale that yielded no higher price,” Reuters reported.

“Barclays Capital is proud of its role in helping Del Monte achieve that opportunity for Del Monte’s shareholders,” Barclays said in a statement obtained by Reuters.)

According to the ruling, Barclays sought to protect its own interest by withholding information on multiple occasions from Del Monte’s board. Such information could have “led Del Monte to retain a different bank, pursue a different alternative, or deny Barclays a buy-side role,” Laster wrote.

Barclays, in fact, finagled its way to provide financing for the deal, according to the ruling. Late in the sale process, as Barclays was negotiating the sale with KKR, it asked the PE firm for a third of the buy side financing. Once KKR agreed, Barclays then got Del Monte’s permission. Having Barclays provide one-third of the financing didn’t result in a higher price for Del Monte and its role wasn’t required. But Barclays can expect to earn more from providing buy-side financing than from serving as Del Monte’s sell side advisor, Laster said.

Barclays expects to earn $23.5 million from advising Del Monte and another $21 to $24 million from its buy-side role, according to the ruling.

Laster also took issue with Barclay’s running the go-shop for Del Monte. The investment bank had a direct financial conflict and “would earn substantially more for executing the LBO with KKR than it would for any other strategic alternative,” the ruling said.

The investment bank acted badly when it paired Vestar with KKR to make a bid for Del Monte, according to the ruling. Barclays put the two highest bidders together and reduced the prospect of real competition, the ruling stated. “Teaming up Vestar and KKR served Barclays’ interest in furthering a deal with an important client (KKR) that previously had used Barclays for buy-side financing,” Laster said.

The judge, with his decision, isn’t blocking the merger and the injunction doesn’t give either party the right to terminate the deal. However, Lestar is stopping KKR from receiving a $120 million termination fee if Del Monte receives a “topping bid.” But the judge admitted that the likelihood of a better offer is low. “I will not be surprised if no one emerges,” Lestar wrote.

(Editor’s Notes: The original headline on this story was changed to more accurately describe the facts of the story. Also, to clarify the source of certain statements, we added attribution to the first sentence of the ninth paragraph, to the 10th paragraph and to the first two sentences of the 12th paragraph.)