DLM Del Monte Foods Co.

Barclays Capital, in its pursuit of fees, secretly "manipulated" the sale of Del Monte Foods Co. (DLM) to private-equity firms, a Delaware Chancery Court judge said in a ruling late Monday.

Vice Chancellor Travis Laster, ruling in a lawsuit brought by shareholders, postponed a shareholder vote on the deal 20 days, to March 7, to give more time to consider the latest developments, but did not block the deal.

The lawsuit doesn't name Barclays, a unit of Barclays PLC (BCS, BARC.LN), as a defendant. But an attorney for the plaintiffs, Stuart Grant, said Tuesday he would add the bank as such in an amended complaint filed later this week. Thus far, the defendants include the buyers Kohlberg Kravis Roberts & Co., Vestar Capital Partners and Centerview Partners, as well as members of Del Monte's board.

In his ruling, Laster found that Barclays acted out of turn several times during Del Monte's sale, in which the bank was an advisor to Del Monte and provided debt financing for the buyers. In pursuing close to $50 million in fees, Laster said, Barclays withheld key information from the Del Monte board and also arranged a "surreptitious and unauthorized pairing" of KKR & Co. (KKR) and fellow buyout partner Vestar that reduced the odds for a bidding war.

"Barclays secretly and selfishly manipulated the sale process to engineer a transaction that would permit Barclays to obtain lucrative buy-side financing fees," Vice Chancellor Laster wrote.

The judge also found fault with letting Barclays run the "go-shop" to find competing bids. Barclays, which was set to receive up to $24 million in financing the KKR-led deal, "had a keen desire to see the deal close with KKR."

A Barclays spokeswoman disputed the judge's findings. She said the bank ran an "extensive, robust and public sale" that yielded a purchase price--$19 a share--that was higher than Del Monte shares ever traded on the public market, and a 40% premium to the price at the time. The go-shop period run by Barclays reached out to 53 possible suitors, and yielded no higher offers.

"Barclays Capital is proud of its role in helping Del Monte achieve that opportunity for Del Monte's shareholders," the spokeswoman said.

A Del Monte spokeswoman said the process was carried out above board. "The board is confident that it ran a thorough and effective process," the spokeswoman said.

Still, the case highlights conflicts that arise when advisers wear multiple hats in mergers and acquisitions. It's not an uncommon occurrence, as recent deals like Hefty garbage bag maker Pactiv Corp.'s $6 billion sale to New Zealand's Rank Group PLC (RNK.LN) and vitamin company NBTY Inc.'s $4 billion sale to Carlyle Group had the same advisor on both sides of the table.

The criticism has been that a bank is too conflicted to act objectively for both sides. Financial sponsors, in particular, are some of Wall Street's best customers. Last year business with private-equity firms brought in $9.5 billion in revenues to the top banks, according to Dealogic, twice that of 2009 and about 15% of overall investment banking revenues.

The opinion notes that Barclays earned $66 million in fees from KKR in the last two years.

Del Monte's board did ultimately approve Barclays' role in providing financing to KKR, where it was one of eight banks providing debt.

But the judge ruled that Barclays misled the board in order to keep its lucrative roles on both sides of the fence.

The chief indiscretion by Barclays, the judge said, involved the bank playing matchmaker by putting together the eventual buying group of KKR and Vestar. The two private-equity shops submitted the two highest bids when Del Monte was testing the waters for a sale in early 2010.

Del Monte declined to move forward, but KKR continued to pursue the company, known for brands such as Meow Mix pet food and Del Monte canned fruits and vegetables. KKR also continued to meet with Barclays.

Barclays then later approached Vestar and in September, suggested the two firms team up on a bid, which they agreed to do.

KKR submitted its new bid in October. Vestar's participation wasn't brought to light until the following month.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com

-By Liz Moyer, Dow Jones Newswires; 212-416-2512; liz.moyer@dowjones.com

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