M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Tuesday, November 9, 2010

Gymboree litigation

On Oct 11, 2010 Gymboree, a Delaware corporation, announced that it was to be acquired by Bain Capital.  I asked how long before the first lawsuit would be filed.  Not that long it turns out.  On Oct 12, two complaints (Halliday complaint and Himmel complaint) were filed in the California state courts.  The third was filed, also in California, on Oct 18 (Harris complaint).   

The allegations in the various complaints can be summarized as follows:

Acting on their own self-interest, defendants utilized a defective sales process which was not designed to maximize shareholder value or protect the interests of Gymboree’s shareholders, but rather was designed to divert the Company’s valuable assets to Bain Capital. Each of the defendants has breached their fiduciary duties of loyalty, due care, independence, candor, good faith and fair dealing, and/or has aided and abetted such breaches. Rather than acting in the best interests of the Company’s shareholders, defendants spent substantial effort tailoring the structural terms of the Proposed Acquisition to aggrandize their own personal interests and to meet the specific needs of Bain Capital, which efforts will eliminate the majority of the equity interest of the Company’s shareholders.

In essence, the Proposed Acquisition is the product of a flawed process that was designed to ensure the sale of Gymboree to Bain Capital, on terms preferential to Bain Capital and defendants, and detrimental to plaintiff and the Company’s shareholders. Plaintiff seeks to enjoin the Proposed Acquisition.

No complaints were filed in the Delaware Chancery Court.  



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