Food wholesaler United Natural Foods Inc. this week filed a multi-count lawsuit in the Supreme Court of the State of New York against Goldman Sachs Group Inc. and its subsidiaries to recover damages and recoup what it believes are the group’s ill-gotten gains “stemming from its improper conduct during the period in which it advised UNFI on the $2.9 billion acquisition of Supervalu Inc.”
Named defendants in UNFI’s complaint include Goldman Sachs and its principal executive overseeing the Supervalu transaction engagement, as well as Bank of America N.A . and Merrill Lynch, Pierce, Fenner & Smith Inc.
UNFI filed similar claims separately against U.S. Bank for collusive action, led by Goldman Sachs, in these matters.
In its complaint, UNFI lays out how it believes Goldman Sachs used its market power and influence to exploit the company as part of an effort to maximize profits.
“UNFI entrusted Goldman Sachs to provide a full range of transaction advisory services and to arrange a multi-billion-dollar loan for the acquisition of Supervalu,” says the company. “While positioning itself as UNFI’s trusted advisor on the one hand and its counter-party lender on the other, Goldman Sachs consolidated its command over all aspects of the transaction in order to extract millions in unjustifiable interest, fees, and other damages suffered by the (UNFI) and its shareholders.”
“We feel we have an obligation to hold Goldman Sachs and others accountable for the ways in which they materially harmed UNFI and its shareholders in arranging the financing and managing related activities for our acquisition of Supervalu,” said Steve Spinner, UNFI’s chairman and CEO. “We expected our extremely well-paid transaction advisors to provide ethical counsel and unbiased support around this landmark acquisition—not leverage their positions to pursue larger profits for themselves and other clients at our expense and ongoing damage. UNFI is completely committed to the Supervalu combination and firmly believes in its many benefits and synergies, as we have repeatedly exhibited, but we are also determined to pursue our claims against the defendants for their unlawful acts surrounding the deal.”
Jill Sutton, UNFI’s chief legal officer and general counsel added, “We believe a review of the case’s details and facts shows that when the defendants had to choose between UNFI’s best interests and their own profits, they opted to put their financial motives first. They sought to do this while blatantly breaching their agreements and, on information and belief, manipulating UNFI’s lending group in the process, which came to maintain interests that diverge from our interests. Rather than respect its contractual obligations and the law, we believe Goldman Sachs played by its own set of rules both when dealing with us and CDS market participants, for its own benefit.”
UNFI’s breaks its complaints into four main counts:
- Misappropriating $40.5 million: UNFI asserts that the defendants are liable for breach of contract for misappropriating $40.5 million in marketing period fees that Goldman Sachs withheld from the funding it was obligated to provide and paid itself despite not being entitled to do so.
- Misappropriating $11.4 Million: UNFI asserts that the defendants are liable for breach of contract for withholding $11.4 million in advisory fees from the company’s term loan.
- Dealing with UNFI in bad faith and unfairly in excess of an additional $140 million: UNFI asserts that the defendants breached their duty to act in good faith when they forced the company to increase the cost of financing, damaging UNFI by $140 Million.
- Committing fraud against UNFI and manipulating the $470 million market for Supervalu CDS with sizable damages at trial estimated: UNFI asserts that the defendants made material misrepresentations and omissions of fact to induce the company to accept their demand that Supervalu be added as a co-borrower on the term loan. The co-borrower adjustment spurred an artificial and significant spike in the value of CDS protection contracts held by the Bank’s hedge fund clients.
Quinn Emanuel Urquhart & Sullivan LLP and Coburn & Greenbaum PLLC are representing UNFI as external legal counsel.