Bloomberg News

J. Crew Reaches $16 Million Settlement With Funds on Buyout

September 01, 2011

(Updates with amount shareholders can expect to receive under the settlement in fifth paragraph.)

Sept. 1 (Bloomberg) -- J. Crew Group Inc. and the two private-equity firms buying the retailer agreed to pay $16 million to resolve investor lawsuits over the deal, reviving a previous settlement that had collapsed, court papers show.

Executives of New York-based J. Crew and buyout firms TPG Capital LP and Leonard Green & Partners LP, who acquired the clothing-store chain for $3 billion, agreed to add an additional $6 million to the original $10 million settlement to end litigation over the buyout, lawyers said in a filing made public today in Wilmington, Delaware.

J. Crew sued a group of shareholders in Delaware Chancery Court in Wilmington in May in a bid to enforce the original $10 million settlement, which collapsed four months earlier. The new accord will resolve the company’s suit as well as investors’ challenges to the acquisition, according to the filing.

TPG, based in Fort Worth, Texas, and Los Angeles-based Leonard Green agreed in November to buy J. Crew for $43.50 a share. The company operates 250 retail stores under brands including Madewell and 85 factory outlet locations, as well as a catalog business. A majority of J. Crew’s shareholders voted to approve the buyout in March.

Shareholders are likely to get as much as 25 cents a share under the deal, three people familiar with the accord said today. Those people sought anonymity because they weren’t authorized to speak publicly about the settlement.

‘Wrongdoing’ Denied

“Defendants deny any and all allegations of wrongdoing, fault, liability or damage,” according to today’s filing.

Margot Fooshee, a J. Crew spokeswoman, and TPG spokesman Owen Blicksilver declined to comment yesterday on the settlement.

Cody Franklin, a spokesman for Leonard Green, didn’t immediately return a call seeking comment yesterday. Stuart Grant, a Wilmington, Delaware-based lawyer representing the pension funds that challenged the buyout, also didn’t immediately return calls seeking comment.

Some investors sued claiming J. Crew Chief Executive Officer Millard Drexler, who began negotiating with the buyout firms months before the deal became public, didn’t get a fair price for the retailer.

The suing shareholders accused Drexler of using his executive clout to create a sale process that excluded all potential buyers except TPG and Leonard Green, blocking other bidders from making better offers.

Competing Bids

Under the original settlement, J. Crew officials agreed to extend the period to solicit competing bids and cut the so- called breakup fee if TPG’s and Leonard Green’s offer was trumped.

Investors’ lawyers backed out of the settlement, claiming the retailer violated the original agreement by taking steps to discourage other bids. J. Crew then filed suit in Delaware seeking to force shareholders to accept the $10 million accord.

Shareholders’ withdrawal from the original settlement left J. Crew, TPG and Leonard Green officials “no choice but to litigate in order to obtain the rightful benefit of their bargain,” lawyers for the companies said in the May complaint.

Chancery Court Chief Judge Leo Strine still must approve the new settlement before it becomes final. No date has been set for that hearing, according to court dockets.

After approval, the money will be paid to “shareholders of record of J. Crew common stock at the closing of the merger,” the agreement states.

The case is In re J. Crew Shareholders Litigation, 6043, Delaware Chancery Court (Wilmington).

--With assistance from Matt Townsend and Jeffrey McCracken in New York. Editors: Michael Hytha, Mary Romano

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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