Media heavyweights face off in lawsuit

Media specialist ABRY Partners has levied a lawsuit against Providence Equity Partners, saying the Rhode Island-based group misled it in its $500m purchase of F&W Publications. Market observers are split as to who may be at fault.

Yet another lawsuit has been filed accusing one private equity group with deceiving another in the sale of a portfolio company. Boston-based ABRY Partners, this time, is crying foul, saying Providence Equity Partners misled the group about the financials of F&W Publications, a company ABRY acquired from Providence in August for $500 million (€425 million).

F&W, which publishes such titles as Writers’ Digest and Fantasy Sports, is the center of a lawsuit between ABRY and Providence Equity.

This latest lawsuit follows the recent battle between Brynwood Partners and Willis Stein & Partners, which filed a $23 million suit against Brynwood last year regarding a sale between the two parties. However, the ABRY/Providence battle is larger in scale and is occurring against a backdrop where due diligence measures are under increased scrutiny thanks to the recent Refco collapse.

The suit ABRY has filed against Providence pits two of the media sector’s heavyweights against each other. ABRY possibly has the most riding on the case. The firm invested almost 17 percent of its new $900 million fund into F&W, and a loss on the transaction would put a significant dent in its new vehicle. For Providence, the lawsuit is a challenge to the group’s reputation, which has been made sterling following several successful bets in the media sector. There’s a lot to lose on both sides.

In the lawsuit, ABRY claims that Providence misled the buyers by “stuffing” distributors with excess product. In the suit, ABRY claims F&W, preceding the sale, had been “offering unprecedented and grossly abnormal discounts to retailers who sell certain of the company’s books, in a manner inconsistent with the company’s past practices”.

Other claims made by ABRY allege that F&W’s David & Charles book subsidiary moved up shipments to inflate its June 2005 reporting period, and that the magazine division used “outdated budget estimates” as opposed to “present facts and circumstances” to goose its magazine sales.

ABRY is asking that the purchase agreement be rescinded, and that the firm be reimbursed costs and attorneys’ fees.

The market reaction to the dispute has largely been one of surprise that it reached this point this fast. “It’s a pretty extreme response,” said one industry pro.

ABRY is being represented by Washington DC-based law firm Kellogg, Huber, Hansen, Todd, Evans & Figel and Connolly, Bove, Lodge & Hutz, based in Delaware. The suit was filed in the Court of Chancery for the State of Delaware.

Calls to ABRY were not returned by press time, and representives from ABRY’s legal counsel declined comment.

A Providence spokesperson issued a statement, saying: “Providence Equity is very disappointed that ABRY has chosen to file a lawsuit against Providence and its portfolio company stemming from the contract ABRY signed to buy the stock of F&W Publications. Providence Equity categorically denies any wrongdoing related to the transaction. Because the lawsuit is pending, Providence cannot comment on any of ABRY’s allegations other than to say that Providence will vigorously defend the suit in the proper legal forum.”