In a recent judgment the Amsterdam District Court dismissed the guarantee claim of 83 million EURO of Jumbo and Coop against Sligro related to the takeover of the Emté supermarkets. The Court deemed it insufficiently proven that the forecasted figures were incorrect. The corporate law lawyer Onno Hennis explains the case.
In 2017 Sligro put its supermarket activities under the name Emté due to disappointing results. The sale took place by means of a competitive bidding process (controlled auction).
The defendants were inter alia provided with the opportunity to conduct an audit (due diligence) in a digital data room set up by Sligro. Furthermore, they were provided with the opportunity to ask questions in writing (Q&A) and various ‘expert sessions’ were organised.
In the context of the due diligence Sligro stated that over the financial year 2017 a gross profit of 24.3% was achieved. These figures were based on group financial statements drawn up and audited by the accountant, but no separate audit was conducted of the figures as such.
The gross profit was significantly depending on the allocation of supplier bonuses, which Sligro received as a group and divided between various subsidiary companies. In the context of the selling process Sligro said little because according to Sligro this information was competitively sensitive for it.
In the spring of 2018 parties concluded a purchase agreement for the takeover of the Emté Holding
The portion of registered capital of a private or public limited company
» Meer over share shares in exchange for payment of a purchase price of 410 million EURO. Shortly after the share The portion of registered capital of a private or public limited company
» Meer over share share transfer Jumbo and Coop started to organise the purchase at Emté differently. Furthermore, Jumbo and Coop immediately dismissed 95% of the personnel at the head office.
It soon became apparent that the results of Emté fell short of the expectations of Jumbo and Coop. Therefore they let Ernst&Young conduct an audit. Ernst&Young established that Emté could at the most achieve a gross profit of 20% and was therefore loss-making. Ernst&Young also established that there could not be any external influence explaining the disappointing figures.
For this reason Jumbo and Coop relied on the guarantees issued by Sligro in the purchase agreement that the figures issued by Sligro were drawn up in good faith and gave a true and fair view of its financial position. Furthermore, they relied on the fact that Sligro guaranteed that all information given by it was correct.
The Court first of all held that the key question in the case was whether during the selling process Sligro had provided incorrect information regarding the manner in which the supplier discounts were allocated. Jumbo and Coop argued that this was the case because it had become evident afterwards that in fact Sligro allocated all advantages to Emté ‘to make its figures seem better than they are’. During the audit Sligro hardly gave any information regarding the division and questions from Jumbo and Coop were barely answered.
However, the Court did not concur with this. The Court argued that although Sligro had provided little information, it had good reasons for this (sensitivity to competition). Furthermore, according to the Court it had also not been demonstrated that Sligro breached any accounting rules due to its method of allocation of the advantages. Last of all, the deviating answers to the questions did not prevent Jumbo and Coop from entering into the transaction.
Apart from that, the Court held that Jumbo and Coop personally had decided to organise the purchase differently and to dismiss 95% of the personnel. According to the Court it cannot be excluded that these measures (also) are a cause of the disappointing results. The Court therefore dismissed the claims.
Jumbo and Coop can lodge an appeal against the judgment of the Court. According to messages in the media they are indeed considering this. In that case they will have to submit grounds for appeal against the judgment. The Court of Appeal will then consider the case once again.