TORONTO – Private equity firm Catalyst Capital has launched a $750 million lawsuit against the former owners of Wind Mobile, claiming breach of contract, misuse of confidential information and conspiracy.
In a statement of claim filed Tuesday, May 31st with the Ontario Superior Court of Justice, Catalyst says that one of the prior owners of Wind Mobile and its bank – VimpelCom and UBS Securities Canada – breached an exclusivity contract when negotiating for the sale of Wind during the summer of 2014 with Catalyst. Further, Catalyst claims that the group which eventually purchased Wind from VimpelCom later in 2014 (Globalive Capital, Tennenbaum Capital, 64 NM Holdings, LG Capital Investors, Serruya Private Equity, Novus Wireless Communications, West Face Capital and Mid-Bowline Group) misused confidential information gleaned from Catalyst and VimpelCom’s negotiations to “conspire” against Catalyst as it negotiated to purchase Wind Mobile.
Catalyst has asked for a jury trial. As well, this statement of claim does not name the current owners of Wind, Shaw Communications, but deals with the prior owners and the 2014 transfer of ownership.
According to its court filing, Catalyst’s interest in Wind dates back to December of 2013 when it first offered to buy Wind from VimpelCom for $550 million, an offer that was rejected while VimpelCom and its Canadian partner Globalive Wireless Management Corporation (helmed by Tony Lacavera, who was also Wind’s co-founder and CEO) searched for other investors as the company struggled to build its customer base and deal with its rising debts. By March of 2014 though, VimpelCom wrote off its investment in Wind Mobile, having been unable to purchase it outright due to the federal government’s objection back in 2012.
In late March of 2014, Catalyst and VimpelCom entered into a confidentiality agreement as the two sides attempted to come to a new agreement for Wind and between March and May of 2014, Catalyst and UBS, says the statement of claim, reached a preliminary agreement where “Catalyst would purchase Wind based on an enterprise value of $300 million with a closing date of no later than May 30, 2014,” it reads. However, the two sides could not come to terms.
While that was going on in the spring, VimpelCom was negotiating with other parties, including West Face and Tennenbaum, says the statement. Tennenbaum then acquired some vendor debt owed by Wind and also put together a consortium of equity partners which also conducted due diligence on Wind then.
However, adds the court document, Catalyst and VimpelCom kept going so that on July 23, 2014, the two then entered into an exclusivity agreement – meaning they would only negotiate with each other “without the possibility of a competing bid interfering,” says the filing. It also means that neither side can go out and solicit any further interest.
“VimpelCom instructed Wind's management, including Lacavera, that all discussions with any other prospective purchaser of GWMC (Wind’s parent, Globalive), its subsidiaries or any of their material assets must cease until the end of the exclusivity period. Although not a party to the Exclusivity Agreement, Lacavera was obligated not to take any steps that undermined its purpose and intent,” reads the statement.
According to Catalyst, that’s not what happened and even though the exclusivity agreement was extended to August 18, 2014 and Catalyst thought it had a deal, a consortium of Tennenbaum, West Face, LG, Serruya and Novus – along with Globalive, conspired to make sure it fell apart.
“In or about August 2014, the members of the Consortium, Globalive and Lacavera entered into a conspiracy the predominant purpose of which was to induce VimpelCom to breach the Exclusivity Agreement, to cause VimpelCom to cease negotiating with Catalyst in good faith and to thereby cause harm to Catalyst,” reads the statement of claim.
As an example, cites the document: “The Conspirators agreed that one of the terms they would offer to VimpelCom would be that the closing of their offer would not be conditional on any regulatory approval from IC (Industry Canada). The Conspirators included this term in their offer with the knowledge that Catalyst had not offered this term and would not do so.”
“Lacavera knew that if Catalyst was the successful bidder, it intended to terminate his position as CEO of Wind and to eliminate his equity position in the company." – Catalyst Capital
The statement of claim is especially hard on Lacavera, saying he used his position as CEO of Wind to gain access to Catalyst’s confidential information during its negotiations with VimpelCom – for the benefit of himself and the consortium.
“Lacavera knew that if Catalyst was the successful bidder, it intended to terminate his position as CEO of Wind and to eliminate his equity position in the company. In order to prevent this from occurring, and contrary to his contractual obligations to Catalyst under the Confidentiality Agreement, Lacavera shared Catalyst's Confidential Information with West Face and Tennenbaum, including the fact that Catalyst was negotiating with VimpelCom with regard to Wind,” reads the statement of claim.
“Between April 2014 and August 18, 2014, Lacavera repeatedly communicated Confidential Information to the Consortium” and “the Consortium knowingly received and misused Catalyst's Confidential Information to create the Proposal and gain an unfair advantage over Catalyst in its negotiations with VimpelCom.”
Finally, Catalyst claims VimpelCom then used it as a “stalking horse bid” and “ceased negotiating with Catalyst in good faith.” It said a phone call with Industry Canada on August 11, 2014 where Catalyst and VimpelCom told the government the “deal was done” is completely counter to how four days later VimpelCom asked for a $5-$20 million break fee to be paid if Catalyst’s purchase didn’t get regulatory approval, something the Wind owner had not asked for until then.
On August 19th, the exclusivity agreement expired and on September 15th, the Consortium, through Mid-Bowline Group, bought VimpelCom’s stake in Wind. The consortium then sold it to Shaw in January of 2016 for $1.6 billion. “As a result, the Consortium received a profit of over $750 million, thereby crystallizing Catalyst's damages as a result of the Conspirators' and VimpelCom's wrongful conduct,” reads the statement.
Catalyst says they discovered the conspiracy in January of 2015 when it brought a motion to oppose a plan of arrangement sought by Mid-Bowline and affidavits from Globalive’s chief legal officer Simon Lockie, Tennenbaum principal Michael Leitner and LG Capital principal Hamish Burt described “the consortium’s efforts to purchase Wind and Globalive’s role in assisting the consortium members,” reads the filing.
“This new evidence, when considered in the context of the timing of the Exclusivity Agreement and VimpelCom's change in negotiation posture with Catalyst in August 2014… revealed the details of the Conspiracy, including the common intent of the Conspiracy, Consortium's efforts to induce VimpelCom to breach the Exclusivity Agreement and the Consortium's misuse of Confidential Information.”
On top of the $750 million sought in damages, “Catalyst claims that the Defendants' egregious actions, as pleaded above, were so highhanded, willful, wanton, reckless, contemptuous and contumelious of Catalyst's rights and interests so as to entitle Catalyst to a substantial award of punitive, aggravated and exemplary damages” of an additional $1 million, says the statement of claim.
None of this has been proven in court and the defendants have not yet responded. They have 20 days to do so. We messaged Lacavera for comment but have not yet heard back from him.
