The uneasy peace between J. Crew Group Inc. and shareholders contesting its acquisition by TPG Capital and Leonard Green & Partners has come to an end.

This story first appeared in the February 2, 2011 issue of WWD. Subscribe Today.

Stuart Grant, an attorney at Grant & Eisenhofer, told Delaware Chancery Court vice chancellor Leo Strine Jr. that the plaintiffs were no longer supporting the settlement they had hammered out just minutes before the “go-shop” provision of the J. Crew takeover agreement expired at midnight on Jan. 15.

In that deal, the company agreed to extend the go-shop provision one month, until Feb. 15, opening up more time for rival bidders to top the private equity firms’ $3 billion takeover offer. The deal also said J. Crew might pay plaintiffs $10 million.

But Grant said the company weakened the settlement by announcing the results of the initial go-shop period, which produced no rival bids, and by setting a date of March 1 for shareholders to vote on the deal.

And so the shareholders are looking for a payday.

“In light of defendants’ actions to undermine the benefits of the settlement, plaintiffs now intend to focus all efforts toward obtaining a very significant monetary recovery after a trial in this matter,” said Grant, in a letter to Strine, which was circulated by news organizations.

In a statement to WWD, J. Crew said: “The memorandum of understanding with the Delaware plaintiffs announced on Jan. 18 is a binding agreement, and the company will challenge any attempt to change or revoke it.”

The firm said it had “honored its obligations” and would move forward with its shareholder vote on the deal as scheduled.

Grant said the two sides negotiated the settlement until 11:30 p.m. on Jan. 15, when J. Crew’s chairman and chief executive officer, Millard “Mickey” Drexler, “finally made the critical compromises that plaintiffs had demanded.” The talks continued until 2 a.m., and the settlement was laid out in an e-mail exchange.

“Immediately after informing the court about the settlement, defendants started taking unilateral actions to undermine the benefits to the shareholders of the settlement,” Grant said.

“Defendants’ actions also turned the extended go-shop period into a charade, since the special committee [of J. Crew’s board] sent the signal to the world that they are investing all resources in closing the deal with TPG as soon as possible, and that nobody else should bother to bid for J. Crew,” he said.

For one of fashion’s sterling brands, managed by one of the industry’s most-respected merchants, it’s been a particularly messy takeover process. Drexler was criticized early on for talking to the private equity firms about a potential buyout almost seven weeks before presenting it to his board.

Shares of J. Crew Tuesday rose 1 cent to $43.43.

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