BJ’s Wholesale Club Inc.’s directors won dismissal of investor claims that the board didn’t get enough for the third-largest U.S. warehouse-club chain in a $2.8 billion buyout by two private-equity firms.
Officials of Westborough, Massachusetts-based BJ’s acted properly in deciding to accept a $51.25-a-share buyout bid last year from Leonard Green & Partners LP and CVC Capital Partners instead of offers from two other unidentified bidders, Delaware Chancery Court Judge John Noble concluded yesterday.
“The board’s conduct, as alleged in the complaint, seems entirely reasonable,” Noble said in 41-page ruling throwing out investors’ claims that directors accepted too low a price for the company and negotiated the offer in bad faith.
Moody’s Investors Service downgraded BJ’s last year after finding executives adopted a “highly aggressive” financial strategy in the wake of the acquisition. The chain made two debt offerings totaling more than $1.6 billion to refinance loans tied to the buyout, which was completed in September 2011.
BJ’s is the No. 3 warehouse-club chain after Costco Wholesale Corp. (COST:US) and Wal-Mart Stores Inc. (WMT:US)’s Sam’s Club. The New York Post newspaper reported last year that BJ’s executives turned down a $55-a-share buyout offer from Wal-Mart, citing antitrust concerns.
Michael Gennaro, a spokesman for Los Angeles-based Leonard Green, didn’t immediately return a call seeking comment on yesterday’s ruling.
Lawyers for a Virgin Islands-based pension fund, the asset- management division of a German bank and individual investors who hold BJ’s shares sued over the buyout, arguing the chain’s directors improperly favored Leonard Green’s bid to help protect senior managers’ jobs.
Laura Sen, BJ’s chief executive officer, won assurances that the funds would “retain BJ’s senior management following consummation of the buyout” in return for backing the bid, lawyers for investors argued in a court filing last year.
After hearing arguments in October, Noble found yesterday that BJ’s directors properly set up a yearlong process for reviewing bids for the chain and weren’t motivated by senior executives’ concerns about their futures with the company.
“Allegations that the defendants manipulated the sales process are largely unsubstantiated by the facts” presented in investors’ suits, the judge said.
Shareholders also couldn’t show that a majority of BJ’s board was “beholden to management” and would taint the sales process to protect executives’ jobs, Noble added.
The case is In re BJ’s Wholesale Club Inc. Shareholders Litigation, CA6623, Delaware Chancery Court (Wilmington).
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