The U.S. partner of Strauss Group in its hugely profitable international coffee unit has sued the Israeli food manufacturing giant, amid reported plans to take Strauss Coffee public on Wall Street.
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The Texas-based private equity firm TPG, which owns 24.9% of Strauss Coffee, has asked a commercial court in The Netherlands to order an inquiry into the affairs of the company. TPG claims Strauss Group, which owns 74.9% of the division, has abused its rights as a majority shareholder.
The move comes as TPG had been looking to sell its stake, for which it paid $293 million in 2008. TheMarker reported last week that the company was being lined up for a listing on the New York Stock Exchange, but the dispute is disrupting the IPO process.
TPG claims Strauss Group had overcharged Strauss Coffee for “nonexistent and/or insufficient services.” Sources familiar with the matter said TPG believed that since 2011 Strauss Group was overcharging the division €3 million a year in areas such marketing, human resources, legal and information technology.
Strauss Coffee had paid between €20 million and €25 million annually for these services, but TPG contends that over time the Israeli company has been proving fewer and fewer services, forcing Strauss Coffee to spend more to make up the shortfall.
The dispute was brought to a head by what TPG said was Strauss Group’s proposed dismissal of Todd Morgan, who has been CEO of Strauss Coffee since 2010 and is regarded as the key figure behind its success, after he raised the matter of the overcharging. Morgan was TPG’s board representative to Strauss Coffee before he became CEO three and a half years ago.
“Strauss Group is seeking to dismiss Mr. Morgan after he had mentioned the issues of overcharging ... to Strauss Coffee’s board of directors and sought independent advice,” TPG said. The sources said Morgan had hired a Dutch law firm to look into the matter.
In its filing with the Dutch Enterprise Chamber, which hears corporate governance disputes, TPG is seeking an injunction against Morgan’s dismissal and the appointment of an independent director to Strauss Coffee’s board, TPG said on Tuesday. Strauss Coffee is a Dutch-registered company.
Strauss Group said it had not yet received the claim. “Once it is received, the company will study the claim and vigorously defend against it,” Strauss said in an emailed statement to Reuters.
“Strauss Group is committed to support Strauss Coffee and to achieving the best outcome for all stakeholders of the company,” it said. It made no further comment and did not refer to Morgan.
TPG took its stake in Strauss Coffee five years ago at a $1.17 billion valuation. Investment bankers who have examined the company believe it can be floated at a $2 billion valuation, but sources close to TPG says Strauss is not interested in the taking the unit public. Instead, they claim, Strauss is using the Morgan affair to undermine the IPO plans and leave TPG no choice but to sell back its stake in Strauss Coffee at a lower valuation.