BC Partners, Chewy Settle Restructuring Suit for $29.5 Million

BC Partners LLP and Chewy Inc.‘s board won approval Tuesday for a $29.5 million settlement to end a derivative challenge to a complex restructuring at the PetSmart LLC spinoff.

The accord was the result of negotiations where the investor who brought the lawsuit in Delaware Chancery Court worked “hand-in-hand” with a special litigation committee of Chewy’s board, Chancellor Kathaleen St. Jude McCormick said in a bench ruling following a hearing in Wilmington.

“This was a really cool case” that allowed younger law firm associates to “see people on opposite sides working collaboratively” in a model of the civility the Chancery Court expects of its litigators, Ned Weinberger of Labaton Keller Sucharow LLP, representing the investor who filed the 2024 lawsuit, said in the hearing.

“Popularity is overrated but civility is not,” replied McCormick.

The lawsuit claimed the October 2023 overhaul at the online pet supply retailer favored insiders with Apollo Global Management Inc. The private equity firm wasn’t named as a defendant in the dispute. The restructuring, which involved a merger with a holding company, also unfairly benefited BC Partners, Chewy’s controlling stockholder, by unlocking significant tax benefits for them while exposing Chewy to tax liability, the lawsuit said.

Chewy has already benefited, shareholder attorneys said in a brief, because the litigation prompted the appointment of two new independent directors to form a special litigation committee.

The committee recommended pursuing a settlement. Reaching an accord would provide a “certain (and meaningful) financial benefit without further risk,” the committee said in a brief.

“This case involved some highly complex tax issues and novel legal issues,” and the governance changes resulting from the litigation “had a lot of value,” said Daniyal Iqbal of Wilson Sonsini Goodrich & Rosati PC, representing the committee.

McCormick also approved a $5.5 million fee award for the shareholder attorneys and a $5,000 incentive award for the investor leading the litigation.

BC Partners bought PetSmart for $8.7 billion in 2015, acquired Chewy two years later for $3.4 billion, merged some of their operations, and then spun off Chewy in an IPO in 2019.

The investor, Eric Gilbert, is also represented by Friedman Oster & Tejtel PLLC and Kaskela Law LLC. BC Partners and most Chewy directors named as defendants are represented by Richards Layton & Finger PA and Kirkland & Ellis LLP. One director, Martin Nesbitt, is represented by Young Conaway Stargatt & Taylor LLP and Cleary Gottlieb Steen & Hamilton LLP. Chewy is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP.

The case is Gilbert v. BC Partners LLP, Del. Ch., No. 2024-1165, settlement hearing 6/23/26.