In re J.Crew Shareholder Litigation
The litigation arose from the defendants' conduct in connection with the sale of J.Crew Group Inc. (J.Crew) to private equity firms TPG Capital, L.P. and Leonard Green & Partners, L.P. (the Buyout Group). Plaintiffs alleged that J.Crew's CEO, Millard Drexler, manipulated the sales process to favor the Buyout Group to the detriment of shareholders. In doing so, plaintiffs' alleged that J.Crew's board of directors breached its fiduciary.
After engaging in expedited discovery, the plaintiffs reached what they believed was an unprecedented settlement with defendants, fundamentally restructuring and extending the sales process so as to and encourage other potential suitors to make competing bids by, among other things, (i) extending the go-shop period; (ii) stripping the Buyout Group of its right to be informed of the go-shop process until the expiration of the extended period; (iii) requiring Drexler to agree to a two-year non-compete agreement if he declined to remain with the company if anyone other than the Buyout Group acquired J.Crew; (iv) substantially reducing the termination fee to less than 1% of the value of the proposed transaction; (v) eliminating the Buyout Group's matching rights; (vi) providing potential suitors with the ability to recover up to $3 million in expenses if the company declined to accept an alternative proposal submitted by them; and (vii) compelling J.Crew to share with all potential third parties the same information provided to the Buyout Group upon the execution of a confidentiality agreement.
On January 18, 2011, the company filed a Form 8-K with the U.S. Securities and Exchange Commission, disclosing both the terms of the settlement itself and the results of J.Crew's efforts to solicit additional indications of interests in the go-shop process. The plaintiffs promptly concluded that the disclosure of the results of the Company's go-shop efforts violated the settlement and undermined a key intended benefit of it, which was to keep the Buyout Group, as well as the marketplace, in the dark about potential competing bids until the extended go-shop period expired. As a result, plaintiffs suggested that defendants had breached the terms of the settlement.Extended litigation ensued, and defendants filed a separate action seeking specific performance of the settlement.
After extensive arm's-length negotiations, the parties reached a revised agreement to finally and fully resolve the claims asserted in the underlying action and the settlement litigation. The revised settlement agreement increased the payment to J.Crew's shareholders from $10 million to $16 million. The parties also participated in confirmatory discovery, including the production and review of documents and the deposition of the financial advisor to J.Crew's special committee.