maintained by John DeGroote Services, LLC, Trustee

 

Case Summary

The allegations below are paraphrased from those set forth in the Complaint filed on July 21, 2011:

In July 2007, BearingPoint, Inc. was one of the largest professional and IT consulting firms in the world, with an aggregate value of as much as $2.3 billion.  Nineteen months later, in February 2009, BearingPoint was bankrupt, and was later liquidated, yielding approximately $400 million in net proceeds.  The Complaint filed in this dispute seeks redress for the alleged breaches of fiduciary duty that caused this loss to the Company’s shareholders and creditors, and alleges specific instances where BearingPoint’s directors failed to develop, manage and oversee the Company’s sales process, instead allowing it to be dominated by a self-interested Chief Executive Officer who had a personal interest in ignoring significant segments of the marketplace in order to maintain his management position, vest certain equity interests, and obtain new equity holdings in the purchasing entity.  The Complaint further alleges that the failures of the directors were avoidable, and directly resulted in the decline of the Company’s value and inability to obtain the best price available for its assets, which the directors could have achieved by either selling the Company as a whole for a price in the approximate range of $1 billion to $1.4 billion or by selling the Company’s businesses for an aggregate price of $1.56 to $2.3 billion. The Complaint further alleges that, instead, the directors’ failures led to BearingPoint’s bankruptcy and liquidation of its business units and other assets, yielding net proceeds of approximately $400 million and resulting in losses of $627 million to $1.88 billion.

The Complaint alleges that, as members of the Board of Directors (the “Board”) of BearingPoint, Inc. (with its affiliates, “BearingPoint” or the “Company”), each of the Defendants had a fiduciary duty to actively prepare, determine, develop, and manage a strategy to pursue and maximize the highest value for the Company.  This responsibility included the obligation to participate, actively and directly, in the management and oversight of the sales process, and to examine, explore, understand, and become fully informed of the sale options.  As further alleged, they were advised by management and by independent professional financial advisors that these options included: (i) finding and selling the Company as a whole to a strategic buyer, i.e. a buyer already engaged in a similar business; (ii) finding and selling the Company as a whole to a financial buyer, i.e. a private equity buyer; or (iii) selling the Company’s various discrete business units to separate purchasers.

As alleged further in the Complaint, the Defendants consciously disregarded and abdicated their fiduciary duties by, among other things, ignoring buyers in two of the three large segments of the sales market—strategic buyers of the whole and buyers of business units—effectively allowing the sales process to hinge upon the willingness of a financial (private equity) buyer to purchase the whole Company.  The Complaint alleges that this wrongful limitation occurred even though the Company’s financial advisors told both the Board and the CEO that the critical strategic buyer market “should not be ignored,” that the sale of parts could yield a higher value, and presented them with the specific identities of numerous potential strategic buyers of the whole Company as well as buyers interested in the purchase of individual business units.  It is also alleged that one of the Company’s financial advisors advised the defendants that it was ready to bring strategic buyers to the table, including two that already had their own boards’ approval to proceed, while the Company’s General Counsel, whose advice was repeatedly ignored by the Defendants, was forced to warn them that proceeding with fewer than all interested parties was “the kind of decision that could be revisited in litigation,” and thus the Company had to have “at least one active, strategic alternative to private equity bids . . . .”

The Complaint further alleges that the defendants further abdicated their fiduciary responsibilities by delegating the flawed sales process to a conflicted director, Defendant F. Edwin Harbach, who as the Company’s Chief Executive Officer, deflected marketplace interest by commandeering and manipulating the sales process in a self-interested effort to preserve and enhance his personal interests, including a continued management role and monetizing current and newly obtained equity in a prospective sale.  Harbach allegedly limited the sales process to pursuit of a sale of BearingPoint as a whole to a financial/private equity buyer that would provide for these benefits.  The Defendants, including those who were later appointed to a purported “Special Committee,” allegedly permitted this conduct to occur, in conscious disregard of repeated, direct warnings, advice, evidence, and pleas, as well as direct, personal knowledge that it was occurring, in direct contravention of their obligation to ensure that the process was yielding maximum value.

The Complaint states that, not surprisingly, the ultimate negotiations with Defendant Harbach’s chosen financial buyer, Cerberus Capital Management L.P. (“Cerberus”), failed.  The allegations state that, in pursuit of his personal interests, including an unreasonable demand for additional equity holdings, Harbach guided the sales process in a self-interested way toward the financial buyer, Cerberus, but the negotiations were so beset by conflicts and a flawed process that the Company’s then-financial advisor was forced to tell the other Defendants, after months of negotiations, that Cerberus was “choking” on Harbach’s equity demands and to request the other Defendants’ intervention into the process—intervention that never occurred.  The allegations are that, less than three weeks later, Cerberus ceased negotiations, and thereafter, in February 2009, the Company filed for bankruptcy as a result of its foreseeable cash liquidity crisis.

As was inevitable for such a Company, BearingPoint was liquidated soon thereafter.  The bankruptcy of a professional services firm with operations around the globe, as all Defendants knew far in advance, meant devastating loss to the value of its business units and the overall enterprise, as well as loss of numerous jobs for employees.  The Complaint alleges that such losses could have been avoided had the Defendants complied with their fiduciary duties, but, tragically, they did not.  This case seeks redress for these losses for the benefit of the Company and its creditors.