The Delaware Chancery Court has delayed the Del Monte Foods Co. stockholder vote, scheduled for February 15, in a proposed multibillion sale to a KKR & Co.-led group.  In In re Del Monte Foods Co. S’holders Litig., C.A. No. 6027-VCL (Del. Ch. Feb. 14, 2011) (PDF), the Delaware court delayed the stockholder vote for 20 days based upon a preliminary finding that the Del Monte directors breached their fiduciary duties. The court also enjoined the proposed buyers’ deal protection devices, including a termination fee and matching rights in conjunction with a go-shop provision. 

The Delaware court determined that the advice the Del Monte board of directors received from a financial advisor was tainted because of the financial advisor’s conflicts of interest, including an effort to provide buy-side financing for the deal before there was an agreement on price and certain activities with potential bidders.  The court pointed to the board’s ultimate responsibility for the process and the requirement to take “an active and direct” role.  The court also identified inappropriate activities by the potential buyers.

A Bloomberg report on Feb. 15, 2011 noted that both Del Monte and the financial advisor defended the sales process as achieving the best price for the Del Monte stockholders.

OUR TAKE:  While this case is not final, it serves as a wake-up call to a public company board to be fully engaged in the sale process.  This includes managing the relationship with the company’s financial advisors, which, in an increasingly competitive environment, may have multiple, and potentially conflicting, interests in a sale transaction.

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