Strauss Group’s Storm in a Coffee Cup Continues

Suit by former CEO of Strauss Coffee ahead of IPO reveals muddy brew of claims and counterclaims.

Yoram Gabison
Yoram Gabison
Yoram Gabison
Yoram Gabison

Two months after Strauss Group fired Strauss Coffee CEO Todd Morgan, the affair refuses to die. The unit is a joint venture between the Israeli food corporation and Texas private equity fund TPG Capita.

A lawsuit filed by Morgan has provided a window into the business practices and troubled relations between Strauss Coffee’s partners as well as between senior executives of the Strauss Group.

Morgan is asking a Dutch court to order Strauss to give him back his job, continue paying his salary and to amend a statement it issued to the media and staff announcing his dismissal, which he asserts has damaged his reputation.

Morgan, who has already started working at another private equity fund, Centerbridge Partners, claims his dismissal violated Dutch labor laws because the Strauss Group did not get approval from UWV, the Dutch agency that supervises the employment of foreigners, and because the reason cited for the dismissal was loss of confidence in Morgan.

Morgan alleges that he fell victim to the dispute between Strauss Group and TPG over a planned initial public offering. As evidence for this allegation, Morgan noted that a year ago he had received high marks as CEO of the company, which expressed “great and unshakable confidence” in him.

But five weeks later, at a meeting attended by Strauss Group chairwoman Ofra Strauss and two directors on behalf of TPG, Strauss Group CEO Gadi Lesin threatened to fire Morgan, which the latter claims was aimed at derailing the IPO. The dispute over the IPO exacerbated tensions between Strauss Group and TPG in the second half of last year.

Nevertheless, Morgan contends that during the entire period leading up to his dismissal, Ofra Strauss and her senior executive acted as if they could trust him.

For example, Morgan attended three days of board meetings at Três Corações – Strauss Coffee’s Brazilian unit and its biggest profit center – in December, two weeks after the issue of his dismissal was raised. Lesin himself was present for only one of the three days.

The meeting was critical, according to Morgan, because Lesin and Ofra Strauss had both expressed concern that San Miguel, the local partner in Três Corações, had too much control over the joint venture. The fact that Lesin entrusted him with such sensitive topics testifies to the confidence he had earned, Morgan contends.

Morgan has also initiated legal proceedings to ensure his right to share options and has asked Rotterdam District Court to rule that he was fired without cause.

Morgan claims that since plans have gotten underway to conduct the IPO, Strauss Group has acting to reduce the value of Strauss Coffee with the aim of buying out TPG inexpensively. That, Morgan contends would also harm the value of his options.

1.5-billion-euro IPO

According to the Strauss Group’s financial reports, Morgan received options for 1% of Strauss Coffee’s shares that can be exercised for 300,000 euros, meaning that if Strauss Coffee is floated at a value of 1.5 billion euros, as analysts have estimated, a handsome profit is expected.

The lawsuit reveals that the talks between Strauss Group and TPG on buying out the fund’s holdings were held on the eve of Morgan’s dismissal early in January, forming part of Morgan’s attempt to prove that he is covered by Dutch labor law and that he is therefore eligible for the protection by UWV.

The lawsuit revealed that Morgan learned of his dismissal on January 3, by email. As Morgan recounts it, he received a voice message at 10:18 A.M. saying, “Hi Todd , it’s Gadi Lesin, good morning, please give me a call, I have a message for you regarding the general meeting. Thank you, bye-bye.”

Four minutes later, Morgan received an email telling him he was fired; six minutes after that, he received a text message from Lesin reading, “Please call me regarding your dismissal as CEO Strauss Coffee.”

The Strauss Group said in a statement that Morgan’s accusation are baseless and noted that a suit in Dutch commercial court had ruled in its favor.

“The end of Morgan’s employment was carried out in an orderly fashion and according to law,” the company said. “Strauss Coffee paid Morgan all that was due him according to his employment contract and it will act to fight off his vexing suit.”

For all that not a coffee bean grows in Israel, Strauss Group has become quite the world power in the stimulating quaff. Credit: AP

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