Cravath Sued for Role in $1.36B Grocery Chain Buyout

Cravath, Swaine & Moore is being sued by a former public shareholder of a grocery chain in a class action that alleges the firm breached its fiduciary duty by providing tainted advice that directed the grocer toward a buyer, private equity group Apollo Global Management.

New York-based Cravath crafted a “false and misleading” U.S. Securities and Exchange Commission filing relating to the 2016 $1.36 billion leveraged buyout of The Fresh Market by Apollo, the complaint alleges.

The plaintiff claims in a complaint filed in the Delaware Court of Chancery that Cravath drafted the Schedule 14D-9 “to procure stockholder approval and cover up prior wrongdoing,” and in doing so, pocketed $5.5 million in fees.

A Schedule 14D-9 is an SEC filing that discloses the details of an offer to purchase shares.

The complaint alleges that The Fresh Market’s founder and chairman, Ray Berry, made a deal with Apollo that would allow the company to buy out the public stockholders “on the cheap” and never entertain other buyout offers.

“The Company’s board of directors avoided threatened stockholder activism by acquiescing to and covering up a sham sale process,” the complaint alleges.

Its “high-powered advisors,” including Cravath, “each stood to benefit financially from making a deal happen, and they each aided and abetted breaches of fiduciary duty to do so,” it said.

“Cravath’s task was to lend a patina of integrity to a sham auction,” the complaint said.

Cravath did not immediately respond to request for comment on the complaint.

The suit also names JP Morgan, which served as investment banker to The Fresh Market on the deal.

This is the second iteration of the case. The Delaware Supreme Court in 2018 reversed a dismissal of the case that had been based on stockholder approval of the challenged transaction.

It found that the record supported the plaintiff’s allegation that the auction of The Fresh Market was a sham.