March 21, 2023

Hulu Faces a Nebulous Future as It Seeks a New Owner

But the valedictory lap did not last long. Even as the number of views were adding up, so were concerns within the company about the site’s future.

That’s because Hulu, the Web streaming service that is jointly owned by the Walt Disney Company, NBCUniversal, and News Corporation, is up for sale. And each of the potential buyers brings with it a different vision of what Hulu should become.

The interested parties include Time Warner Cable, DirecTV, the Chernin Group — an investment firm owned by the former News Corporation president Peter Chernin — and two private equity firms, Guggenheim Digital Media and Kohlberg Kravis Roberts.

Yahoo, which completed its $1.1 billion acquisition of Tumblr on Thursday, had also expressed interest with an exploratory offer of $600 million to $800 million, according to several people briefed on the sale, who, like several others in this article, spoke on the condition of anonymity because negotiations for the sale were continuing.

The eventual value of Hulu (which would include the brand, its accessible interface and the rights to many of the television shows it offers) is expected to be roughly $1 billion. Binding bids are due by Friday, though one person familiar with the process said the deadline could be delayed until next month.

Web sites change hands all the time, but Hulu’s sale could signal something more fundamental: the end — at least in its current form — of one of the pioneers of online streaming, which in recent years has become an increasingly popular way to view content.

Hulu has a free Web site, with streams of TV episodes supported by ads, and a subscriber-only section, called Hulu Plus,which offers additional episodes at a cost. In 2012, Hulu had $695 million in revenue and the Hulu Plus service had four million paying users, according to the company.

Depending on the buyer, Hulu could be used to foster the further growth of online streaming as an alternative to the cable TV bundle. Or the site could be kept under lock and key, exclusively for the use of cable subscribers.

Time Warner Cable, for instance, would like to use Hulu to create an industrywide “TV Everywhere” hub in which subscribers could have access to network and cable shows on-demand. A distributor like DirecTV could use Hulu — both its brand name and its technology — to sell a new service that streams a bundle of television channels to subscribers over the Internet. Intel is trying to create a similar type of service; if it succeeds, then traditional distributors may feel the need to sell something similar.

For cable or satellite distributors, Hulu is also a prize for an existential reason: as an executive at one distributor put it, “It’ll make us look like we’re ready for the future.”

But that option concerns some Hulu employees who are fond of the company’s quirky Silicon Valley-meets-Hollywood culture. They see the site as an innovative service that untethers shows from the television, not as another piece of a costly cable bill.

“Can Hulu remain Hulu if a cable company buys it?” asked one person close to the company.

Several Hulu executives have already left the company, amid worries about the future, and it is possible there could be an exodus of creative and engineering employees if a cable operator wins the auction and the site loses its start-up identity.

Jason Kilar, the founding chief executive of Hulu, left in March and was temporarily replaced by Andy Forssell, the senior vice president for content and now the acting chief executive. Richard Tom, the former chief technology officer at Hulu, left after Mr. Kilar, as did Johannes Larcher, the former senior vice president for international operations. Later this summer, Pete Distad, Hulu’s senior vice president for marketing and distribution, also plans to depart. A spokeswoman for Hulu declined to comment.

Mr. Chernin has the most personal connection to Hulu, as he championed the start-up from its inception when he was still at News Corporation. This year, Mr. Chernin reportedly bid about $500 million for the company. The Chernin Group receives financial backing from Providence Equity Partners, which until October owned a 10 percent stake in Hulu. (Providence is not directly involved in the bid.)

Now, ATT is in talks to join the Chernin Group in a bid for Hulu, a pairing that would give Mr. Chernin’s media, technology and entertainment investment group the financial heft to go up against major corporations. (The technology Web site AllThingsD first reported on the partnership. An ATT spokesman declined to comment.)

For ATT, Hulu could present the opportunity to expand its “U-verse Screen Pack,” a $5-a-month option that lets U-verse TV subscribers stream videos.

Michael J. de la Merced contributed reporting.

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High & Low Finance: The Corrosive Effect of Apple’s Tax Avoidance

The shameful thing is that we have a tax system that seems to allow multinational companies to choose what they want to pay.

The fact that this costs the government money is important, but that is not the critical element. Revelations about the ability of the rich and well connected to duck taxes can have a corrosive effect on the attitudes of the rest of us. If others who are better off than you can get away with not paying taxes, why shouldn’t you look for a way to cheat on your taxes?

The news in the Senate report about Apple was not that the company had found ways to shift income to low-tax jurisdictions. Lots of multinational companies do that. The news was that Apple had found a way to move a large part of its income to subsidiaries that claimed to not exist anywhere, at least when it came to paying taxes.

Carl Levin, the Michigan Democrat who heads the Senate Permanent Subcommittee on Investigations, had good reason to call that the holy grail of tax avoidance.

In that way, the Apple hearing filled a similar role to the one played by disclosures about Bain Capital, the private equity firm founded by Mitt Romney, during the last presidential campaign. It had been common knowledge that private equity firms had found ways to have most of the money earned by partners taxed at low capital gains tax rates, through what is known as carried interest. What came out last year was that some had found a way to treat all of their compensation that way.

Senator Levin, and the ranking Republican on the subcommittee, John McCain, tried to make the point, again and again, about how unfair the current system is to domestic companies, which cannot hide profits overseas, and to ordinary taxpayers, whose income is derived from salaries and investments that are automatically reported to the Internal Revenue Service.

“The general American public should not have to make up the balance as corporations avoid paying billions in U.S. taxes,” Senator McCain said.

But no other Republican senator seemed interested in that analysis. They praised Apple for avoiding taxes, saying that benefited its shareholders. Senator Rand Paul of Kentucky, a physician, suggested it would “probably be malpractice” for a chief financial officer not to do everything possible to minimize the corporate tax bill.

If that is the standard, perhaps Senator Paul, instead of apologizing to Apple for the fact that the hearing was being held, should have joined in what he called the “vilification” of the company, but for an entirely different reason. As Tim Cook, Apple’s chief executive, testified, there is a whole range of tactics Apple has chosen not to use.

“Apple does not hold money on a Caribbean Island, does not have a bank account in the Cayman Islands, and does not move any taxable revenue from sales to U.S. customers to other jurisdictions in order to avoid U.S. taxation,” he said.

I asked Jeffrey M. Kadet, who spent a career with large accounting firms helping companies to minimize their international tax payments — working in places like China, Japan, Hong Kong, Singapore and Russia — and now teaches tax law at the University of Washington, to review the subcommittee’s report on Apple.

“Apple’s basic structure and planning described in the memorandum appears to be appropriate corporate tax planning in today’s environment and is consistent with what I review with my students in class,” he said in an e-mail. “The company appears to be almost conservative in its approach of not trying to move any portion of profits on sales to U.S. customers into its overseas structure as some other groups have done.”

One such company, as the Senate subcommittee documented last year, is Apple’s archrival, Microsoft.

What Apple did was transfer rights to its intellectual property to a subsidiary that was incorporated in Ireland — and therefore not subject to immediate United States taxation — but managed in California. Under Irish law, that freed the subsidiary from Irish taxation.

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The Trade: The Problem With the Fed’s Easy Money Policies

My most recent column incited a robust and welcome discussion. But few of my many critics, including Paul Krugman on his blog and many commenters on DealBook, seem to have engaged with my main point.

My piece was not celebrating hedge fund managers. It was not predicting inflation and imminently rising rates or a debt crisis. Nor was the main point to rehash who got the financial crisis right or not.

Lastly, the main point was not to dwell on the Federal Reserve’s credibility problem, though I think that’s important.

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What was my main point? We are four years into the One Percent’s recovery. Now, we are in Round 3 of quantitative easing, the formal term for the Fed injecting hundreds of billions of dollars into the economy by purchasing longer-term assets like Treasury bonds and Fannie Mae and Freddie Mac paper. What’s that giving us? Overvalued stocks. Private equity firms racing to buy up Arizona real estate. Junk bond yields at record lows. Ratings shopping on structured financial products.

These are dangerous signs of prebubble activity.

But, much more important, quantitative easing is not giving us a self-sustaining recovery and job creation. As I put it in the column, hedge fund managers “can read markets, and they can see that the Fed isn’t engineering the hiring, inflation and recovery it would like.” There’s been a breakdown in the connection between wages and productivity. Labor participation is desperately low.

So are we moving from the bust to the bubble and missing the recovery for average people?

And if so, why?

Many people argue that we need more fiscal stimulus. That’s persuasive, but it’s clearly not happening with today’s Washington.

In response to my column, people have said: What else should the Fed do? Things would be far worse if the Fed weren’t buying $85 billion in bonds a month. Look at Europe, whose monetary policy has been almost as big a disaster as its fiscal policy.

But how long do we have to wait? How much more wealthy do the One Percent get to become through speculation — how much house flipping do private equity firms get to do — before we see some sustained improvement in the rest of the economy?

And could it be that with a heavily indebted populace and a dysfunctional banking system still unable to lend effectively, that this round of quantitative easing is having a counterproductive effect? As evidence that the banking system transmission mechanism isn’t working well, small businesses are having a hard time borrowing, according to a recent New York Fed poll.

One solution is that the Fed needs to have a heavy regulatory hand to limit speculative activities. Perhaps regulators should raise margin requirements for stocks. Put the ratings agencies on notice that they are watching out for any loosening of criteria. Make these efforts public and keep talking about them.

And then, maybe quantitative easing needs to be refocused away from long-term Treasuries and housing. Maybe the Fed could figure out a way to buy student debt or municipal bonds to support infrastructure.

If quantitative easing is necessary, it should support investment, not speculation.

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Judge Narrows Private Equity Collusion Lawsuit

Despite allowing part of the main claim to go forward, U.S. District Judge Edward Harrington in Boston said investors who brought the lawsuit fell short of demonstrating a wider “overarching” conspiracy to drive down takeover prices.

“While some groups of transactions and defendants can be connected by ‘quid pro quo’ arrangements, correspondence, or prior working relationships, there is little evidence in the record suggesting that any single interaction was the result of a larger scheme,” Harrington wrote on Wednesday.

The civil antitrust lawsuit was brought in 2007 against 11 defendants, including prominent private equity firms such as Bain Capital Partners LLC, Blackstone Group LP, Carlyle Group LP, Goldman Sachs Group Inc‘s private equity arm, KKR Co and TPG Capital Management LP.

JPMorgan Chase Co, which provided financing and advice on some transactions, was also a defendant. Twenty-seven transactions were challenged, including 19 leveraged buyouts, six non-leveraged buyouts, and two that were never conducted.

The plaintiffs were shareholders in the once publicly-traded companies that were bought by the firms between 2003 and 2007. They claimed to have lost billions of dollars because of the firms’ conspiracy to artificially deflate takeover prices.


Harrington said the investors may pursue a claim that the firms agreed not to outbid each other after transactions were announced, a practice known as “jumping.” But he also gave the defendants a fresh chance to seek dismissal of this claim.

The judge also allowed investors to pursue a claim alleging a conspiracy among some defends to rig bids and not compete for hospital chain HCA, the subject of a $32.1 billion leveraged buyout in 2006 by Bain, KKR and others.

Claims against JPMorgan were also dismissed, because the evidence did not show that the largest U.S. bank bid on target companies or suggested its participation in the “narrowed overarching conspiracy,” Harrington wrote.

“From the plaintiffs’ perspective, this was a good day,” said Christopher Burke, a partner at Scott Scott representing the shareholders, in a phone interview.

“This remains a multibillion dollar case, and that is going forward,” Burke added. “What was written by some defendants in their papers, and by some of the press, that what we had was ‘thin gruel’ has been dispelled.”

Joseph Tringali, a partner at Simpson, Thacher Bartlett who argued on behalf of the defendants, declined to comment.


Much of the shareholders’ case was built on emails between principals at the private equity firms that they said reflected an implicit understanding to keep takeover prices low, perhaps 10 percent below what they should have been.

In one example, after Blackstone topped KKR with an $18 billion bid for technology company Freescale Semiconductor, Blackstone President Hamilton “Tony” James emailed KKR co-founder George Roberts.

“We would much rather work with you guys than against you,” James wrote. “Together we can be unstoppable, but in opposition we can cost each other a lot of money.”

Among the other buyouts that were the subject of the lawsuit were casino operator Caesars Entertainment and arts and crafts retailer Michaels Stores.

Mitt Romney, the 2012 Republican presidential candidate and a Bain founder, left that firm in 1999 before the transactions in question, and was not a defendant.

The case is Dahl et al v. Bain Capital Partners LLC et al, U.S. District Court, District of Massachusetts, No. 07-12388.

(Reporting by Jonathan Stempel in New York; Editing by Grant McCool and Andrew Hay)

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Hong Kong Takes a Second Look at Changes to Corporate Database

HONG KONG — The second-highest official in Hong Kong said Wednesday that the government was reviewing a proposed rule change that had triggered a groundswell of worry among global banks, accounting firms, investors and media companies who fear the loss of a powerful tool against corruption in China.

Carrie Lam, Hong Kong’s chief secretary and second-ranking official, said that the city’s financial services regulators had begun holding discussions with its privacy commissioner about the proposed rule change. The change, contained in a bill that the administration began pushing through the legislature last month, calls for deleting the identity numbers and addresses of company directors from Hong Kong’s corporate registry starting next year.

“We will continue to listen to public views,” Mrs. Lam said.

Many financial institutions around the world depend on Hong Kong’s corporate registry for information about businesses here and in mainland China. They use it to check whether company directors have ever been associated with fraud or corruption at other businesses, in Hong Kong or in mainland China.

Banks consult the registry, which is available online and at a Hong Kong government office, before agreeing to help a company do an initial public offering on stock exchanges in Hong Kong or in mainland China. Hedge funds, private equity firms and other investors check the registry before buying large blocks of stock in companies. Journalists check the registry for investigative reporting.

Including the identity numbers and addresses is what makes it possible to ascertain whether a director in a company is someone with a background of fraud and other corrupt dealings, or simply someone with a similar name. There have been a series of cases in mainland China in which an individual accused of having a shady background has maintained that he or she was being confused with someone else, only to be found out based on the registries.

David Webb, a corporate governance activist in Hong Kong who maintains a database of directors of local companies, welcomed the government’s willingness to review the draft rule.

“It’s encouraging if they’re starting to think about it,” Mr. Webb said. “It is important to be able to identify people uniquely.”

He noted that his database has 19 people named Chan Chikeung and 12 people named Chan Waikeung, who need to be distinguished by identity numbers.

Mainland China also has corporate registries. But the Chinese government closed them to investors and other users, starting in Beijing more than a year ago and later in other Chinese cities as well, after short-sellers from the United States used research in those registries to document widespread fraud and other abuses at Chinese companies listed on U.S. stock exchanges.

Lack of access to mainland registries has made the registry in Hong Kong, which Britain returned to Chinese rule in 1997 but which retains a separate legal system, much more important in recent months.

Mrs. Lam said that the Hong Kong administration and legislature had held discussions dating at least to 2009 before adopting a new ordinance on companies last summer. The ordinance had broadly worded provisions encouraging privacy in corporate records, and there was little discussion about what that privacy might mean for financial markets.

The controversy began this winter when the government sent an implementing bill to the legislature with detailed changes to laws, including the deletion of data from the registry.

China’s incoming leader, Xi Jinping, has called for a crackdown on corruption but has been silent about the role of Hong Kong. The city is popular among mainland officials and their families as a safe place to park large sums of money beyond the reach of the Chinese police and tax collectors, and the city now has some of the world’s highest real estate prices partly as a result, creating an affordable-housing problem.

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Bucks Blog: The Tax Code and the Very Rich

Almost anyone who receives a paycheck will pay higher taxes this year. But as Paul Sullivan writes in his Wealth Matters column this week, the very wealthiest Americans — those worth hundreds of millions or more — usually don’t get paychecks. These people, generally partners in private equity firms or hedge fund managers, earn much of their money as a share of their funds’ earnings. And those earnings are taxed at a lower rate than ordinary income.

So while tax economists say the tax code may now be the most progressive in a generation, the richest of the rich often have the most options for deferring taxes or sheltering some of their income.

Have you figured out yet how you will be affected by new tax rules? And what changes would you have made to the tax code?

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DealBook: CVC Capital to Buy Cerved for $1.49 Billion

LONDON – The European private equity firm CVC Capital Partners has agreed to buy the Italian credit data and business intelligence company Cerved from two rival private equity firms, Bain Capital and Clessidra.

Under the terms of the deal, CVC Capital will pay 1.13 billion euros ($1.49 billion) for Cerved.

CVC will seek to expand Cerved’s business outside its core Italian market, where it already serves around 80 percent of the country’s leading companies, according to a statement released on Wednesday.

“Our plan is to continue pursuing the growth of the business both organically and through acquisitions,” Cerved’s chief executive, Gianandrea De Bernardis, said in a statement.

Bain Capital and Clessidra created Cerved in 2008 after they bought several units from local banks to form the company.

Cerved, which currently employs about 1,000 people, reported revenue last year of 292 million euros, a 9 percent increase from 2011, according to Cerved’s Web site.

Deutsche Bank advised CVC Capital on the deal, while HSBC advised Bain Capital and Clessidra. Credit Suisse, Deutsche Bank and HSBC provided financing for the acquisition.

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DealBook: Aetna Agrees to Buy Coventry in $5.7 Billion Deal

An Aetna benefits card and medical information.Wilfredo Lee/Associated PressAn Aetna benefits card and medical information.

6:37 p.m. | Updated

Aetna announced on Monday that it would buy Coventry Health Care for about $5.7 billion in cash and stock, a move Aetna said would help it expand further into government-backed programs like Medicaid and Medicare.

It is the latest deal in an industry that has been spurred to seek consolidation in part because of the Obama administration’s sweeping expansion of health care coverage.

Last month, WellPoint agreed to buy Amerigroup for about $4.9 billion, in a deal that increased WellPoint’s presence in the markets for Medicare, for older patients, and Medicaid, for low-income patients. DaVita, Cigna and the private equity firms BC Partners and Silver Lake have also struck multibillion-dollar deals.

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But Aetna’s acquisition would be the biggest in the managed health care industry since the Affordable Care Act was signed into law in 2010. Under the terms of the deal, Aetna, based in Hartford, will pay $27.30 in cash and 0.3885 of a share for each of Coventry’s shares. At Friday’s prices, that amounts to $42.08, a 20 percent premium over Coventry’s closing price last week.

“Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing government sector and expand our relationships with providers in local geographies,” Aetna’s chief executive, Mark T. Bertolini, said in a statement.

Aetna’s shares were up 5.6 percent, to $40.18. Shares in Coventry climbed to $42.04.

Coventry, based in Bethesda, Md., offers a variety of insurance services, including government-financed programs. It earned $543.1 million last year on revenue of $12.2 billion, and its shares rose 17.5 percent in the 12 months before the deal was announced.

Aetna said the deal was expected to close by the middle of next year, and would lead to around $400 million of annual cost savings by 2015.

Aetna’s move was widely praised. Analysts at JPMorgan Chase wrote in a research note on Monday that Coventry would enhance the company’s presence in markets like Florida, Kentucky and western Pennsylvania.

They added, however: “While certainly enhancing, we don’t see this as a game changer in terms of government focused capabilities for Aetna going forward.”

Goldman Sachs, UBS and the law firms Davis Polk Wardwell and Jones Day advised Aetna on the deal, while Greenhill Company and the law firms Wachtell, Lipton, Rosen Katz; Bass, Berry Sims; and Crowell Moring advised Coventry.

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DealBook: 99 Cents Only Chain in $1.6 Billion Buyout

Jacques Elsair shops at the 99 Cent Only store in Los Angeles.Nick Ut/Associated PressA shopper at a 99 Cents Only outlet in Los Angeles.

The low-cost retailer 99 Cents Only Stores agreed on Tuesday to sell itself to a group of investors that includes its founding family for $1.6 billion in cash, ending a months-long sales process.

Under the terms of the deal, Ares Management and the Canadian Pension Plan Investment Board will pay $22 a share, 7.3 percent above Monday’s closing price.

It is also nearly 32 percent above the company’s stock price on March 10, the last day before 99 Cents received its first takeover offer, from Leonard Green Partners.

The Gold/Schiffer family, which founded the company almost 30 years ago, has agreed to roll over its 33 percent stake into the newly private company. The existing management, led by members of the family, will continue to run the company.

The winning bid by Ares and the Canadian pension plan emerged after the 99 Cents board formed a special committee to consider takeover offers after the company received Leonard Green’s $19.09-a-share bid in March.

“We have come to know and respect Ares Management and C.P.P.I.B. through this process, and we believe they will be excellent partners and help us achieve our long-term goals as a company,” Eric Schiffer, the chief executive of 99 Cents, said in a statement.

So far this year, low-cost retailers have been a popular target for private equity firms. Such stores are expected to continue growing amid deepening economic malaise.

Two weeks ago, Family Dollar warded off a $7 billion takeover bid by Nelson Peltz that it said undervalued the company. In exchange for dropping his bid, Mr. Peltz received a seat on Family Dollar’s board.

Based in Commerce, Calif., 99 Cents runs 287 stores in the Southeast and Texas. It reported $74.3 million in profit on revenue of $1.4 billion for its most recent fiscal year, which ended in April.

The 99 Cents special board committee was advised by Lazard and the law firm Morrison Foerster, while the company was counseled by Munger, Tolles Olson. The Gold/Schiffer family was advised by Guggenheim Securities and the law firm Skadden, Arps, Slate, Meagher Flom.

Ares and the Canadian pension plan received advice and financing from RBC Capital Markets and BMO Capital Markets. Ares was counseled by Proskauer Rose, while the Canadian pension plan received legal advice from the law firm Torys.

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DealBook: Del Monte and Barclays Settle Investor Lawsuit for $89.4 Million

Matthew Staver/Bloomberg NewsDel Monte agreed last November to sell itself to Kohlberg Kravis Roberts, Vestar Capital and Centerview Capital for $5 billion.

Del Monte Foods said in a regulatory filing on Thursday that it and Barclays Capital had settled a shareholder lawsuit over the company’s leveraged buyout, paying $89.4 million to resolve claims that the deal was improperly managed.

The settlement, one of the biggest recorded in Delaware’s Court of Chancery, resolves one of the most publicly visible disputes over the financing that accompanies private equity deals.

Known as “stapled financing” within the industry, the practice was increasingly common during the leveraged buyout boom — but led to accusations that banks had conflicts of interests between their private equity clients and the companies they were trying to sell.

Del Monte agreed last November to sell itself to Kohlberg Kravis Roberts, Vestar Capital and Centerview Capital for $5 billion, and the deal closed in March.

But shareholders, led by an Illinois pension fund, accused the company of not running a robust auction process that would have fetched the highest possible price for shareholders.

At the heart of the dispute was Barclays’s role as an adviser to the seller and a provider of financing to potential buyers. Documents unearthed through the litigation showed that Barclays first began shopping Del Monte as an acquisition target to potential buyers, hoping to reap big fees by lending private equity firms money for a deal.

According to the documents, Barclays improperly allowed K.K.R. and Vestar to team up, despite having previously agreed not to.

The plaintiffs drew much of the base for their case from a ruling by Vice Chancellor J. Travis Laster of the Chancery Court, finding that Barclays “materially reduced the prospect of price competition for Del Monte.”

Under the terms of the settlement, Del Monte will pay $65.7 million, while Barclays will pay $23.7 million. Both deny all accusations of wrongdoing.

Stuart Grant, a lawyer for the plaintiffs, said in a statement: “The $89.4 million payment to shareholders, when added to the major changes that have occurred in the investment banking community in response to Vice Chancellor Laster’s injunction obtained earlier in the case, makes this a great result for stockholders, not only those holding shares in Del Monte, but all public equity holders of companies involved in M.A. transactions.”

Kerrie Cohen, a Barclays spokeswoman, said in a statement: “We are pleased that the parties have agreed to settle the litigation to avoid the expense, distraction and uncertainty of litigation. We believe that the sale process leading up to the merger achieved the best price reasonably available for Del Monte stockholders.”

Del Monte and Barclays Settlement With Shareholders

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