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UNFI sues Goldman Sachs over Supervalu deal

Lawsuit claims investment bank acted improperly as adviser for transaction

United Natural Foods Inc. (UNFI) has filed a lawsuit against Goldman Sachs Group Inc. that alleges the investment bank engaged in improper conduct as adviser for the distributor’s $2.9 billion acquisition of Supervalu Inc.

The multicount suit was filed yesterday in the New York State Supreme Court. In announcing the move, UNFI said New York-based Goldman Sachs “used its market power and influence” to control “all aspects of the transaction in order to extract millions in unjustifiable interest, fees and other damages.”

UNFI said it retained Goldman Sachs to provide “a full range” of transaction advisory services and arrange a multibillion-dollar term loan to help finance the acquisition of Supervalu. The Supervalu transaction, announced July 26, was closed on Oct. 22.

The suit by UNFI names Goldman Sachs and its principal executive overseeing the Supervalu transaction as defendants, along with Bank of America N.A. and Merrill Lynch, Pierce, Fenner & Smith Inc. UNFI said it also separately filed similar claims against U.S. Bank for “its collusive action, led by Goldman Sachs” in connection with the Supervalu transaction.

"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 Supervaly,” UNFI Chairman and CEO Steve Spinner said in a statement. “We expected our extremely well-paid transaction advisers 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.”

Goldman Sachs denied the charges in UNFI’s suit. "Goldman Sachs believes that these claims are entirely without merit. We intend to vigorously defend ourselves against these accusations,” the investment bank said in an emailed statement Thursday.

UNFI said it aims to recover damages with the lawsuit. The complaint charges the defendants with breach of contract for misappropriating $40.5 million in term loan-related marketing period fees and withholding $11.4 million in advisory fees from the term loan. The suit also alleges that the defendants “breached their duty to act in good faith” by forcing UNFI to increase the cost of financing — damaging the company by $140 million — and committed fraud against UNFI, in turn manipulating the $470 million market for Supervalu credit default swaps (CDS).

"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,” said Jill Sutton, chief legal officer and general counsel for Providence, R.I.-based UNFI.

Providing background, Goldman Sachs spokeswoman Nicole Sharp said in an email that UNFI’s claim focuses on fees but the matter involves a contract breach dispute. She said the fees are split for advisory and financing fees and that UNFI has no basis for claims about CDS and the financing structure.

“Without structuring the financing in this way, we believe the potential lenders would not have participated in the financing,” Sharp stated in the email.

“Regarding the M&A deal itself,” she added, “a number of developments — unknown at the time of announcement — made the deal hard to sell: general deterioration in equity and debt markets, poor reception to the deal by investors and earnings misses by both the borrower and target while the deal was in the market.”

The addition of Minneapolis-based Supervalu made UNFI the nation’s largest publicly traded grocery distributor, with estimated annual sales topping $21 billion. The combined company distributes more than 110,000 products to over 40,000 customer locations — including natural product superstores, independent retailers, supermarket chains, e-commerce retailers and foodservice providers — in the United States and Canada.

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