Shareholder Settlement Over J.Crew Buyout Falls Apart

J. CrewNew York—A recent $10 million settlement deal with shareholders who had sued J. Crew over its $3 billion buyout offer has apparently fallen apart.

Attorneys for the shareholders who had filed suit over the buyout of J. Crew by equity firms TPG and Leonard Green wrote a Delaware court Monday saying their clients intend to pursue their original lawsuit and seek “very significant monetary recovery” despite the previously announced settlement.

On Jan. 18, J. Crew announced the deal to appease the shareholders by extending the go-shop period—where other, possibly higher, bids could be made for the specialty retailer—would be extended through Feb. 15 and the shareholders would receive a $10 million settlement. As part of the agreement, TPG and Leonard Green also agreed to lower the breakup fee they would have received if J. Crew accepted another offer—to $20 million from $27 million.

Settlement Binding or Not?

Charging that J. Crew executives have “sent the signal to the world that they are investing all resources in closing the deal with TPG as soon as possible and nobody else should bother to bid for J. Crew,” Stuart Grand, the shareholder’s attorney, wrote Delaware Judge Leon Strine that the shareholders would pursue their lawsuit with vigor. “Those acts show the company favors the TPG and Leonard Green offer and doesn’t want to “attract other bidders to maximize the value for J. Crew’s shareholders,” Grant said.

In their lawsuit, the J. Crew shareholders had alleged Mickey Drexler, J. Crew’s chairman and other company executives, who stand to make millions of dollars from the proposed buyout, failed to adequately shop the company around to get the highest bid.

It will now be up to Judge Strine to decide if the settlement is binding or lawsuit can continue in court.

Although spokespeople for J. Crew and TPG declined to answer reporters’ inquiries about the shareholder’s latest letter, some purportedly said privately they believe the settlement is binding since the go-shop extension, for example, is already in place.

Even before the shareholders filed suit over the proposed buyout, the backroom machinations between Drexler and the buyout firms had drawn criticism from acquisitions specialists.  “The background section of this proxy statement is going to be used for years to come as an example of things not to do in a management buyout,” one acquisitions expert told the Wall Street Journal.

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