In a very much discussed settlement, Sun Capital, Cerberus Capital Management and Lubert-Adler (private equity firms that own Mervyn’s) and several banks agreed to the department store creditors 166 million dollars to settle allegations that the
firms took fraudulent profits.
to CNN Money, the creditors, which include vendors like clothing companies Li & Fung, Levi Strauss, and VF Corporation (VFC), accused Sun Capital, Cerberus Capital Management and Lubert-Adler of paying themselves rich rewards, while setting Mervyn's up for failure. In other words, the suit had accused the private equity firms of fraudulent conveyance, stemming from their decision to separate the company's retail business from its underlying real estate, unveils ‘Fortune’.
After buying out the retailer from Target (TGT) in 2004 for 1.25 billion dollars, the PE firms added 800 million dollars in debt, while paying themselves 200 million dollars in fees and dividends between 2004 and 2006, according to bankruptcy court filings.
AS ‘WWD’ reported, court documents were filed late Friday in a Delaware bankruptcy court detailing the settlement, which is still subject to court approval. According to court papers, the settlement does not include any admission of wrongdoing.
Sun Capital Partners and Cerberus Capital, along with other defendants, were sued in 2008, when the 59-year old company was forced to liquidate after a failed turnaround effort, reminded ‘The New York Post’ in its last edition. A source close to the case said to the NYC diary that this is one of the largest settlements involving accusations of “fraudulent conveyance,” when assets are transferred out of a company.