Judge approves settlement over "icky" J Crew buyout

Wed Dec 14, 2011 8:34pm GMT

* Settlement approved, minus two lead plaintiffs

* Individual lead plaintiff argued against settlement

* Lone shareholder says was "steamrolled" by attorneys

By Tom Hals

WILMINGTON, Del. , Dec 14 (Reuters) - A judge approved a shareholder class action settlement over the controversial buyout of J Crew Group Inc on Wednesday, and blasted the retailer's sale process as "icky."

The settlement caps a buyout in which J Crew Chief Executive, Millard Drexler negotiated the $3 billion sale before telling his board. Shareholders approved the deal narrowly, in a cliff-hanger vote.

The settlement provides $16 million for shareholders. J Crew also agreed to reduce barriers that were meant to protect the deal for the two private equity buyers, TPG Capital and Leonard Green & Partners.

Delaware Chancery Court Judge Leo Strine also took the unusual step of removing two of the six shareholders who were acting as lead plaintiffs representing the rest of the class.

The New Orleans Employees' Retirement System was removed as a lead plaintiff because it had voted for the sale, which Strine said "doesn't make them look good."

The only individual acting as a lead plaintiff, Martin Vogel, was also removed because he opposed the settlement.

The plaintiffs had sued J Crew's board for agreeing to sell the retailer too cheaply. The sale closed in March and shareholders agreed to settle their lawsuit in September.

Mark Vogel, a New Jersey lawyer and investment adviser who represented his father Martin Vogel at Wednesday's hearing, said the class action process was driven by attorneys who "confined me to a silo" and "steamrolled" him.

"Lead counsel's game is to intimidate the one individual who managed to find his way into their cozy club," Mark Vogel said.

For example, he said he learned that attorneys had agreed to an initial settlement three days after it had been signed.

He also criticized the other plaintiffs, which were pension funds, noting that only one of them had voted against the deal they were litigating over. Four abstained from voting.

"The class should be represented by members who take an active interest," he told the court.

Stuart Grant of Grant & Eisenhofer PA, who represented the class of shareholders, told the court that no one had more input than Vogel in the process, but that did not give him a right to control the case.

"With six lead plaintiffs, one doesn't get a veto," Grant said.

The case has taken several odd turns. At one point the defendants sued the plaintiffs for backing out of an initial agreement to settle.

A large part of Wednesday's two-hour hearing was spent in an argument between Mark Vogel and Strine over J Crew's value, with Vogel saying it was worth as much as $9 billion.

"I'm somewhat suspicious that the world will go gangbusters for J Crew," said Strine, who kept noting that no one else bid for the company.

Strine also criticized the behavior of J Crew's directors and chief executive for allowing TPG Capital, one of the buyers, to get a head start in the sale process, which he said may have eliminated potential rivals.

"It's icky stuff," said Strine. "This was not good corporate governance."

Strine also approved fees for the plaintiffs' attorneys of $6.5 million.

The case is In Re J Crew Group Inc Shareholder Litigation, Delaware Chancery Court, No 6043.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Richard Chang)

((thomas.hals@thomsonreuters.com; +1 610 544 2712; Reuters Messaging: thomas.hals.thomsonreuters.com@reuters.net)) Keywords: JCREW/SETTLEMENT

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