ABRY Partners and Providence Equity Partners have agreed to a settlement in the lawsuit over the August 2005 sale of F&W Publications just weeks before trial was set to begin in Delaware’s Chancery Court.
The settlement foregoes what would have likely been a long and bitter legal dispute.
Terms of the settlement are confidential, but PE Week obtained a letter sent to limited partners last week that says Providence will invest in F&W and have the right to designate a board member.
In addition, F&W will receive certain funds that had been held in escrow until resolution of the legal proceedings. F&W is then expected to use its new capital to pay down bank debt, which possibility could have been rendered void had ABRY won at trial. Providence will not make any direct payments to ABRY, and already has issued a capital call.
An ABRY representative did not return requests for comment, while a statement from Providence said only that the two firms “reached an amicable resolution” to the dispute, and that the settlement agreement ends the pending litigation.
The litigation began late last year when ABRY sued Providence, alleging fraudulent conduct and misrepresentation in relation to ABRY’s $500 million acquisition of Providence portfolio company F&W, a publisher of specialty magazines.
The firm’s initial complaint requested that the deal be rescinded and that Providence cover ABRY’s legal costs.
Shortly after taking control of F&W, ABRY alleged that the Cincinnati-based publisher of such titles as Artist’s Sketchbook, Family Tree and Popular Woodworking magazines had been “channel stuffing through volume discounts,” which means that the publisher offered high discounts to retailers to artificially inflate second quarter sales numbers. (Channel-stuffing is not unusual, but ABRY alleged that it was out of the ordinary for F&W.)
The suit also claimed that a distribution technology system was not ready as promised, that the U.K.-based 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 also 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.
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.