A longtime Brooks Brothers supplier has taken the formerly bankrupt clothier to court.
Filed on May 17, TAL Apparel’s lawsuit centers on the Hong Kong shirting specialist’s $100 million investment in Brooks Brothers, and claims the apparel company’s owners failed to entertain bids that would have fully recouped the supplier’s outlay.
In essence, the suit accuses former Brooks Brothers CEO Claudio Del Vecchio and his son Matteo Del Vecchio, the retailer’s former chief administrative officer and also a board member, and related parties, of abusing their “position of power” and putting their personal “financial interests ahead of those of the company” when refusing to consider bids that would have “yielded hundreds of millions of dollars” for shareholders including TAL, which held a minority stake after its 2016 investment via its newly created Castle Apparel Ltd. subsidiary.
At the time of its investment, estimates valued the American sportswear company at $652 million, according to the lawsuit, which also accused the Del Vecchios of “threatening to take Brooks Brothers’ vendor business with TAL elsewhere” if the supplier balked at the investment opportunity. Losing that relationship, which drove roughly 20 percent of the producer’s annual purchases, would have been “detrimental,” and ultimately compelled TAL to proceed with the deal, the suit noted.
Filed in a Manhattan federal court, the lawsuit further alleges that the Del Vecchios later resorted to “shielding” their search for a potential buyer from the Brooks Brothers board and shareholders once it became “clear” in 2019 that the company was “not performing” according to the duo’s projections. Per the court filing, TAL claims the executives ignored “attractive” purchase offers that would have forestalled its eventual bankruptcy petition because pursuing them would have required the Del Vecchios to “dip into their own pockets” in order to settle up with the 70-year-old garment supplier, paying the difference between what TAL would have gained based on the original valuation versus what it actually received in a sale.
What’s more, the suit says the Brooks executives demanded TAL “take a ‘haircut” on its $100 million investment before they would consider any sale offers that would “trigger the Make-Whole Provision,” a good-faith clause essentially requiring the businessmen to ante up on the deal’s original terms. The provision, the suit claims, was intentionally engineered to prevent TAL from “suffering losses in a fire sale situation.”
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After TAL’s refusal, the suit claims the father-son pair threatened to “roll the dice” and sell the apparel firm in a bankruptcy—which it eventually did last year to Simon and ABG-owned SPARC for $325 million—“in an unfounded effort to evade” the provision.
The Hong Kong company claims it lost “well over $50 million” while the “Del Vecchios stand to personally benefit” from the bankruptcy sale, per the lawsuit. As a result, TAL is seeking “an amount in excess of $100 million.”
The Del Vecchios’ attorney at Skadden Arps did not return a request for comment by press time. “The allegations in the complaint are false and we expect the court to dismiss the case,” a source close to the Del Vecchios told Reuters last week.
The defendants are expected to file an answer to the complaint next month.
Additional reporting by Jessica Binns.