UNFI Files Suit Against Goldman Sachs in Supervalu Acquisition
United Natural Foods Inc. (UNFI) has filed a multicount lawsuit against Goldman Sachs Group and its subsidiaries, alleging improper conduct while the bank was advising the wholesaler on its acquisition of Supervalu. UNFI acquired Supervalu last summer for about $2.9 billion.
New York-based Goldman Sachs and its principal executive overseeing the acquisition, Bank of America and Merrill Lynch, Pierce, Fenner & Smith Inc.,were named as defendants in the lawsuit. UNFI has also filed a similar, separate complaint against U.S. Bank for collusive action led by Goldman Sachs.
The complaint alleges that Goldman Sachs used its market power and influence to exploit UNFI as part of an effort to maximize the bank’s profits, to the detriment of the wholesaler. UNFI entrusted Goldman Sachs to provide a range of transaction advisory services and to arrange a multibillion-dollar loan for the acquisition of Supervalu. While positioning itself as UNFI’s trusted advisor on the one hand and its counterparty lender on the other, Goldman Sachs consolidated its command over all aspects of the transaction, to extract millions in unjustifiable interest, fees and other damages suffered by UNFI and its shareholders, the suit claims.
“We feel we have an obligation to hold Goldman Sachs and others accountable for the ways in which they materially harmed UNFI and its shareholders in arranging the financing and managing related activities for our acquisition of Supervalu,” said Steve Spinner, CEO and chairman of UNFI. “We expected our extremely well-paid transaction advisors to provide ethical counsel and unbiased support around this landmark acquisition — not leverage their positions to pursue larger profits for themselves and other clients at our expense and ongoing damage. UNFI is completely committed to the Supervalu combination and firmly believes in its many benefits and synergies, as we have repeatedly exhibited, but we are also determined to pursue our claims against the defendants for their unlawful acts surrounding the deal.”
Jill Sutton, UNFI’s chief legal officer and general counsel, added: “We believe a review of the case’s details and facts shows that when the defendants had to choose between UNFI’s best interests and their own profits, they opted to put their financial motives first. They sought to do this while blatantly breaching their agreements and, on information and belief, manipulating UNFI’s lending group in the process, which came to maintain interests that diverge from our interests. Rather than respect its contractual obligations and the law, we believe Goldman Sachs played by its own set of rules both when dealing with us and CDS [credit default swap] market participants, for its own benefit.”
The suit doesn't share the amount of damages that UNFI is seeking, but a Financial Times article noted that it's in the area of $500 million. The article added that Goldman Sachs denies the claims.
UNFI’s complaint divides the defendants’ alleged misconduct into four main counts:
Misappropriating $40.5 Million UNFI alleges that the defendants are liable for breach of contract for egregiously misappropriating $40.5 million in term loan-related marketing-period fees that Goldman Sachs withheld from the funding it was obligated to provide, and paid itself despite not being entitled to do so. Without legal justification and any formal communication or invoicing, Goldman Sachs allegedly directed (and both Bank of America and U.S. Bank sanctioned) the withholding of the money from the term loan it committed to provide UNFI at the deal’s closing. Yet the plain terms of the parties’ contract make clear that the defendants had no basis to seek this extra fee because they had a full opportunity to market the term loan at issue.
Misappropriating $11.4 Million UNFI claims that the defendants are liable for breach of contract for withholding $11.4 million in advisory fees from the wholesaler's term loan. Goldman Sachs withheld these fees from the term loan — over UNFI’s objection — despite no contractual authority to do so and without regard for the fact that the bank was already in breach of its contract for its mishandling of financing structure fees. $2 million of the $11.4 million seized by Goldman Sachs was a blatant misappropriation, according to UNFI, because the bank had previously discounted its fees by that amount, but withheld these funds as well.
Dealing with UNFI in Bad Faith and Unfairly, in Excess of an Additional $140 Million UNFI alleges that the defendants breached their duty to act in good faith when they forced the wholesaler to increase the cost of financing, damaging UNFI by $140 million. The defendants were allegedly focused on maximizing their own profits, while failing to make good-faith efforts to syndicate the term loan ahead the close of the Supervalu acquisition. UNFI’s complaint includes additional examples of how the defendants allegedly breached their duties.
Committing Fraud Against UNFI and Manipulating the $470 Million Market for Supervalu CDS, with Sizable Damages at Trial Estimated UNFI claims that the defendants made material misrepresentations and omissions of fact to induce it to accept their demand that Supervalu be added as a co-borrower on the term loan. They allegedly told UNFI that the impact would be minimal, but the effect of adding Supervalu as a co-borrower caused significant harm to UNFI because — unbeknownst to the wholesaler but allegedly well known to Goldman Sachs — the change was part of an unlawful quid pro quo between the bank and CDS holders to solidify their participation in the term loan. The co-borrower adjustment spurred an artificial and significant spike in the value of CDS protection contracts held by the bank’s hedge-fund clients, UNFI charges.
UNFI, based in Providence, R.I. and Minneapolis, is a food wholesaler offering a variety of products to customers throughout North America, including natural product superstores, independent grocers, conventional supermarket chains, ecommerce retailers and foodservice customers.