As first reported by The Financial Times, Cravath Swaine & Moore, a New York law firm, has been accused in a shareholder lawsuit of “improperly steering” the $1.6 billion leveraged buyout of U.S. grocer, The Fresh Market, to Apollo Global Management and the company’s CEO, Ray Berry, who together won the bidding. In short, the suit alleges that the law firm worked to create the appearance of a fair sale as it worked 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 of The Fresh Market, who have previously been sued by its 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, paved the way for a trial.
Since then, additional documents and emails were discovered, which led to the allegations filed against Cravath in addition to The Fresh Market’s investment banker JPMorgan. 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.
Reuters helped break it down further, illuminating 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 which the 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 attractive.
“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.
Deli Market News will continue to report the latest.