The Delmonte Deal in the News

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting, Uncategorized, Video Updates.

Del Monte and Barclays Capital said on Oct. 6 they had agreed to pay $89.4 million to Del Monte shareholders to settle a lawsuit that alleged conflicts of interest in last year’s $5.3 billion buyout of the company by Kohlberg Kravis Roberts, Vestar Capital and Centerview Partners. The case centered on Barclays advising Del Monte while also providing financing to the buyers.

Questions:

1. Explain the problems with the “staple financing” outlined in the article.  What is staple financing?  Is it legal?  Compare this conflict of interest with one that might occur in the accounting profession.

2. In the settlement of $89.4 million, it appears that the Delaware court will not oppose defendant lawyer fees of $22.3 million for lawyers fees plus $200,000 expenses.  What percentage is this? 

3. Do you believe this will put a damper on merger and acquisition activity in the short-run or long-run? Do you think it is warranted?  Why or why not?

Source:

Goldfarb, J. (2011). Food for thought. Reuters News, October 6 (Retrievable online at http://www.breakingviews.com/del-monte-settlement-quantifies-cost-of-conflicts/1609942.article)