ABRY, Providence Quash Legal Squabble

Complainant: ABRY Partners

Defendant: Providence Equity Partners

Allegation: Financial improprieties related to the sale

of F&W Publications

Legal Counsel: ABRY: Kellogg Huber Hansen Todd

Evans & Figel; and Connolly Bove Lodge & Hutz

Court: Court of Chancery for the State of Delaware

As most onlookers probably expected, ABRY Partners and Providence Equity Partners have agreed to a settlement in the lawsuit over the sale of F&W Publications, foregoing what would have likely been a long and bitter legal dispute.

A statement from Providence Equity Partners said that the two firms “reached an amicable resolution” to the dispute, and the pair “entered into a confidential settlement agreement that ends the pending litigation.” The statement also described the resolution as “win-win” for the GPs and their respective limited partners.

The litigation goes back to August of last year, when ABRY Partners sued Providence Equity Partners, alleging that the latter engaged in fraudulent conduct and misrepresentation in relation to ABRY’s $500 million acquisition of F&W Publications. The firm’s initial complaint requested that the deal be rescinded and that Providence, the seller covered ABRY’s legal costs.

Shortly after taking control, ABRY had alleged that F&W had been “channel stuffing through volume discounts,” which means that the company offered unusually high discounts to retailers in order to artificially inflate second-quarter revenue. (Certain magazine publishers “channel-stuff” regularly, but ABRY alleged that it was out of the ordinary for F&W. )

The suit also claimed that a promised distribution technology system was not ready as promised, that the U.K. book division secretly extended the June financial reporting deadline and that the magazine division engaged in “back-starting,” or sending back issues to new subscribers. ABRY even claimed to have uncovered an employee who was keeping two sets of books, in case such improprieties came to light.

Providence, in December, filed a 31-page memorandum in response to the suit, and filed a motion to dismiss the complaint. A Delaware judge however, denied Providence’s request for dismissal.

That the two sides were able to work it out is likely a welcome relief to the firms’ limited partners, a good portion of whom invest in both funds.

A source with knowledge of the settlement told Buyouts that Providence will not be required to pay any damages to ABRY, but has agreed to make a payment toF&W, which the source said is expected to go toward the repayment of debt.

An interesting result of the settlement is that Providence will have an equity stake in F&W going forward, making the two former combatants co-investors.

Litigation is nothing new to most private equity firms. However, public legal battles between two sponsors are rare. In one case that erupted prior to the ABRY/Providence squabble, Willis Stein & Partners sued Brynwood Partners over its purchase of Lincoln Snacks, the maker of Poppycock and Fiddle Faddle. —K.M./D.P..