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Three’s not a crowd when it comes to the third major deal this year for Klehr Harrison Harvey Branzburg & Ellers, Morgan Lewis & Bockius and their mutual client, Sun Capital Partners. The two firms assisted MSH Supermarkets Inc., a Sun Capital affiliate, in its acquisition of Marsh Supermarkets Inc. in a $325 million deal that closed in late September. The firms helped close one of the largest sale-leaseback deals in U.S. history in June with the $815.3 million deal between Sun Capital and Spirit Finance to remove the ShopKo Stores Inc. from its balance sheet. Those stores were acquired by a $1.2 billion deal in February that was also assisted by Morgan Lewis New York corporate partner Steven A. Navarro and Klehr Harrison real estate and finance department chairman Bradley A. Krouse. In the latest deal, MSH Supermarkets acquired Marsh Supermarkets’ 116 supermarkets, 154 convenience stores and other catering and retail businesses that are located mainly in Indiana with some stores in Ohio. Krouse said the retail chain was one of the largest in the Midwest. The deal posed challenges, as Sun Capital was involved in litigation against a late bidder on the deal. The merger agreement was signed in May after Marsh Supermarkets conducted an auction to find a buyer, Navarro said. Everyone who had participated in the auction, including Sun Capital, had signed a standstill agreement that prohibited any participants from giving unsolicited offers to the company after a merger agreement was signed, he said. About a week after the agreement was signed, Navarro said Cardinal Paragon and Drawbridge Special Opportunities Fund together made an offer to Marsh Supermarkets to purchase the company for more than $2 per share over the price agreed on between Sun Capital and the chain. The companies had participated in the auction, he said. Marsh Supermarkets, after checking with Navarro, informed the new bidders that it could not discuss any deal with them. Cardinal Paragon and Drawbridge Special Opportunities continued to talk with Marsh Supermarkets and made the offer again. At that time, Navarro said, the supermarket chain sought a declaratory judgment from the state courts in Indiana asking what it should do. Morgan Lewis Philadelphia office partners William P. Quinn Jr. and David W. Marston Jr. represented Sun Capital’s interests in the litigation. Marsh Supermarkets asked for an expedited trial because of the anticipated closing date of the merger, Marston said. “All the stuff that is normally done over two or three years was compressed into a month,” Marston said. The complaint was filed in mid-June and the case had come to trial by the end of July, he said. Quinn and Marston argued that Cardinal Paragon and Drawbridge Special Opportunities had no standing in the case because they were not a party to the merger agreement. “They were trying to tell the court what an agreement – that they weren’t even a party to – meant,” Marston said. Cardinal Paragon argued that a ruling against them would deny companies the opportunity for the best deal. Marston said companies use auctions to guarantee the best price and standstill agreements are designed to protect the company from receiving low bids until after a merger agreement is signed. Marston added that the company still has a “fiduciary-out” clause that would allow it to consider unsolicited bids from parties that did not participate in the auction. Navarro was familiar with these arrangements from the February deal he did with Sun Capital. This time, however, he was on the opposite side of the table. Sun Capital made a bid on the ShopKo stores after a merger agreement had already been signed between ShopKo and another venture capital fund. “We weren’t asking for two bites of the apple,” he said, because Sun Capital was not involved in the auction to buy ShopKo. As Marsh Supermarkets changed hands, so did its management team. The former chairman and chief executive officer Don E. Marsh resigned and was replaced by Frank Lazaran, who has 30 years of supermarket experience including several positions with Winn-Dixie Stores Inc. Krouse said there were other changes in executive management as well. In the last acquisition by Sun Capital, Klehr Harrison and Morgan Lewis worked on a sale-leaseback deal. In this deal, the firms may again handle a sale-leaseback. Krouse said Sun Capital is considering all of its options, including a sale-leaseback option. Deal Details Without offering specifics, Krouse said the $325 million deal was “highly leveraged.” The agreement was entered into on May 2. Marsh Supermarkets was a public company, and MSH Supermarkets purchased its shares for around $11.12 per share, according to Securities and Exchange Commission documents. Capital Paragon and Drawbridge Special Opportunities made an offer of well over $13 per share, Navarro said. The shareholders voted on Sept. 22, and 72.4 percent of the outstanding Class A common stock and 84 percent of the outstanding Class B common stock voted to approve the merger, according to SEC documents. Baker & Daniels of Indianapolis, Ind. represented Marsh Supermarkets in the deal. Marsh Supermarkets Inc. is a regional chain, operating 68 Marsh supermarkets, 38 LoBill Foods stores, eight O’Malia Food Markets, 154 Village Pantry convenience stores and two Arthur’s Fresh Market stores in Indiana and western Ohio. The company also operates Crystal Food Services, which provides catering, cafeterias management, office coffee, coffee roasting, vending and the concessions, and restaurant management and Primo Banquet Catering and Conference Centers, Floral Fashions and McNamara Florist. Other attorneys from Klehr Harrison who assisted Krouse included Gary M. Friedland, Debora A. Gonzalez, Ryan A. Silverman and Gregory G. Gosfield.

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