Case Spotlight: Will the proposed Kraft Heinz settlement ‘cut the mustard’ with investors?

Hot dog! On May 11, 2023, the court granted preliminary approval of a $450 million cash settlement of the securities class action against Kraft Heinz, maker of many favorite food brands. That’s a lot of cheddar and if approved, will rank 41 on the list of 100 largest settlements.

Will investor sentiment ‘ketchup’ with the parties’ enthusiasm for the recovery? Despite encouragement by the plaintiff bar, no institutional opt-out suits were filed in the consolidated federal court proceedings. This suggests that unlike earlier class actions against large issuers like Petrobras and Vale, more institutions stayed in the class rather than bringing their own direct actions.

If news coverage is an indicator, there’s some expectation class members will think there’s not enough bacon here, given the court’s rejection of the defendants’ motion to dismiss and their apparent ability to pay. Unlike most class actions, the class includes investors that suffered losses on company put and call options, which trade on NASDAQ. Their inclusion increases class-wide damages and the number of institutions eligible for compensation. However, their compensation pool is limited to 4% of the net settlement fund, raising the potential for objections.

The class period is November 6, 2015, through August 7, 2019. With a 5 year statute of limitations for section 10(b) fraud claims, absent tolling agreements, it’s likely too late for unhappy institutions to opt-out as their losses from allegedly false statements and share trades before mid-2017 are time barred. Also, a settlement of this size likely has a significant ‘blow provision’, a contractual term giving defendants the right to revisit the settlement amount if too many class members with large losses remove themselves from the class.

So, at this point, unhappy investors have limited options. They must stay in the class and voice any concerns at the September 12, 2023, final approval hearing. Time will tell whether the proposed settlement ‘cuts the mustard’ with investors, or if their concerns cause the judge to say baloney, putting the settling parties in a pickle.

 


 

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Mike Lange