Strauss’s partner, TPG are reportedly up in arms with the Israeli food conglomerate and are seeking court protection.
Ofra Strauss, chairman of Strauss Group Ltd.
The Israeli-based international food producers, the Strauss Group, are confronting a court case with their erstwhile partners, TPG Capital, who are apparently on the very brink of taking the hugely profitable coffee making division of the company to court in Holland, where the company is registered,
An uncomfortable situation, for which Strauss will be far from happy, especially as it comes in the midst of ever-increasing speculation that the company plans to instigate an initial public offering (IPO) for Strauss Coffee as a separate entity.
Fort Worth, Texas based TPG Capital (known in the past as the Texas Pacific Group) is one of the worlds largest private equity investment firms, with one of their investments being a 24.9% stake in Strauss Coffee.
It now appears that TPG have gone sour on their former partners, going as far as to petition a commercial court in The Netherlands, where Strauss Coffee to instigate an inquiry into the affairs of the company. According to TPG, majority shareholders Strauss Group, has abused their rights as a majority shareholder in the way that the company is managed.
According to unofficial reports, TPG have apparently been interested for some time in disposing of their share in Strauss Coffee, which they have held since 2008, when they paid just under $300 million for their approximate quarter share in the company.
Now that the dispute has reached the courts, speculation is that Strauss’s efforts to mount an IPO for the division will need to be put on hold until the issue is settled.
According to unofficial reports, in their petition to the courts in Holland, TPG’s lawyers are claiming that the Strauss Group had been systematically overcharging €3 million a year Strauss Coffee for what they claim to be “nonexistent and/or insufficient services in such areas as marketing, human resources as well as the provision of legal and information technology.”
Strauss Coffee have been paying an estimated €20 million and €25 million annually for these services, with TPG now contending that, over the last few years, the Israeli company has been steadily reducing the number of services being offered to their subsidiary company, without making any commensurate reduction in the price. A situation that has meant Strauss Coffee witnessing a drop in profits as their overheads have increased artificially to make up the shortfall.
According to officials at TPG, the dispute between the two former partners came to a head when officials at Strauss Group attempted to dispense with the services of Todd Morgan , Strauss Coffee’s CEO for the last three years and regarded as being the driving force behind their success during the years. It is interesting to note that Morgan was TPG’S representative on the board of the company before being appointed to the role of CEO.
According to a representative of TPG, the Strauss Group has been interesting in parting company with Mr. Morgan since he first brought up the issue of possible overcharging to Strauss Coffee’s board of directors, and even more so when he discovered that he had begun to seek independent advice on the possible discrepancy.
Morgan is now reported to have appointed a locally based law firm to look into the matter on his behalf. The law firm is in the final stages of as issuing a filing with the Dutch Enterprise Chamber, whose role it is to adjudicate in the case of corporate governance disputes.
TPG are not only seeking an injunction against Morgan’s dismissal but also requesting the appointment of an independent director to Strauss Coffee’s board.
Sources at the Strauss Group responded by stating that they had yet to receive any form of claim against him from the Dutch court, was going on to add that if and when it is received, the company will study the claim and will be prepared to vigorously defend against it.