- Wholesaler United Natural Foods, Inc. has filed a lawsuit against Goldman Sachs, alleging that the bank engaged in improper conduct during the time that it advised UNFI on its $2.9 billion acquisition of Supervalu, according to a company press release. The defendants were hired to advise UNFI on the deal and to arrange financing through a syndicated loan worth $2.15 billion.
- According to the multi-count complaint, which UNFI filed in New York, Goldman Sachs allegedly put its financial interests before UNFI's, resulting in a breach of contract, fraud and misappropriating nearly $52 million in marketing and advisory fees from UNFI. Also, it accuses Goldman Sachs of arranging the deal in a way that hurt UNFI, but benefited the bank's financial arm and hedge fund clients who had bet against Supervalu in the credit-default swap market.
- Goldman Sachs has denied the allegations and indicated that it intends to "vigorously defend" itself from the lawsuit. Bank of America has declined to comment. UNFI is rumored to be seeking $500 million in damages, according to the Financial Times.
In October 2018, UNFI shelled out $2.9 billion, or $32.50 per share in cash, for Supervalu, which handled distribution for more than 3,000 stores across the U.S., in an attempt to create a premier North American wholesaler.
Now, UNFI is alleging that Goldman Sachs abused its power and influence to maximize its profits from the deal. According to UNFI's complaint, Goldman Sachs breached its contract by arranging financing on a $2.15 billion syndicated loan in a way that benefited the bank and harmed UNFI.
The wholesaler alleges Goldman pressured it to increase the interest rate on the loan after UNFI and Supervalu reported weak earnings shortly after the deal was completed. The deal initially called for Supervalu to offload its $1.6 billion in debt, but according to the suit the bank persuaded UNFI to name Supervalu as a co-borrower on the loan. This preserved more than $470 billion in credit-default swaps, benefiting hedge fund clients of Goldman Sachs, the suit alleges — creating a "quid pro quo" for the clients to buy some of the loan.
It was after the deal closed that UNFI claims it discovered Goldman's hedge-fund clients obtained the Supervalu credit-default swaps. The clients, the suit claims, now stand to benefit from manufacturing a default on the debt, although none have done so yet, The Wall Street Journal notes.
"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 Company and its shareholders," UNFI stated in a release.
The suit comes as yet another headache for UNFI as it works to boost its business while also integrating Supervalu. During the company's investor day conference earlier this month, UNFI outlined a complex growth and integration plan that seeks to provide a broader selection of products for retailers while at the same time boosting efficiency and wringing extra costs out of the system. The company reported a big earnings miss back in December and has admitted that improving Supervalu's performance will be a greater task than anticipated.
Altogether, UNFI believes its plan will boost net sales from just over $20 billion and $650 million in adjusted EBITDA expected this year to $30 billion in sales and $1 billion in earnings over the next three years.