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Judge Cans Bid-Rigging Suit Over $5.3B Del Monte LBO

A California federal judge on Wednesday dismissed a shareholder class action claiming Barclays Capital Inc., Goldman Sachs Group Inc. and three private equity firms rigged bids to block competitors from the $5.3 billion leveraged buyout of food manufacturer Del Monte Foods Co. in March.

U.S. District Judge Claudia Wilken found that the plaintiffs could not prove that Barclays, acting as Del Monte's financial adviser, orchestrated the buyout to win transaction fees from the company and a cut of the buy-side financing from the private equity firms.

"Plaintiff fails to plead an unreasonable restraint of trade and a cognizable antitrust conspiracy," Judge Wilken said, dismissing the case without prejudice.

Accusations were also dropped against Goldman, which was named as a co-defendant for allegedly getting a "piece of the action" after backing off an effort to conduct a 45-day go-shop period.

The plaintiffs, led by a union pension fund, claimed they could have received at least $21 per share in the buyout, instead of the $19 Del Monte ultimately accepted, if competing private equity firms or industry buyers like other food companies had been allowed to bid.

The search for a buyer for the canned foods giant began as early as fall of 2009, when, unbeknownst to Del Monte board members, Barclays approached a select group of private equity firms, including co-defendants Kohlberg Kravis Roberts & Co., Vestar Capital Partners Inc. and Centerview Partners LLC, according to the suit. The bid process was a private one and included no other food companies who might have had a strategic interest in Del Monte, the complaint alleged.

Though Vestar initially made an independent bid for Del Monte, it later teamed up with KKR and Centerview, which had joined forces early in the bidding process, the suit said.

But Vestar's earlier bid, along with an offer from CVC Capital Partners and interest from Campbell Soup Co., was enough to convince Judge Wilken that the process was competitive.

"Without any party holding absolute control over the bidding process, it is not apparent that the defendants undertook any conduct that had manifestly anti-competitive effects," she said.

Barclays argued in its July 21 motion to dismiss that the plaintiffs had lifted their accusations straight from a Delaware chancery court case in which investors sued the Del Monte board for breach of fiduciary duty. In a February opinion, the judge blasted Barclays for "secretly and selfishly manipulating" the bid process and overturned a $120 million termination fee previously payable to the buyers if any competing bid emerged.

But a scathing a chancery court opinion didn't translate to antitrust violations, Barclays argued.

"The plaintiff has merely attached antitrust labels and buzzwords to conduct that has [already] been litigated," the motion said. "Labels, however, do not transform competitive conduct into Sherman Act violations."

The plaintiffs have until Sept. 15 to file an amended complaint.

The lead plaintiff is Pipe Fitters Local Union No. 120 pension fund and is represented by Scott & Scott LLP.

Barclays is represented by Sullivan & Cromwell LLP. Goldman Sachs is represented by Latham & Watkins LLP. Vestar Capital is represented by Kirkland & Ellis LLP. KKR and Centerview are represented by Simpson Thacher & Bartlett LLP.

The case is Pipe Fitters Local Union No. 120 Pension Fund v. Barclays et al., case number 4:11-cv-01064, in the U.S. District Court for the Central District of California.