Chewy investor settles $29.5m derivative suit against BC Partners in Delaware Chancery Court over PetSmart merger tax structuring
A Chewy Inc. investor has reached a $29.5 million settlement with BC Partners, the London-headquartered private equity firm, resolving a derivative suit — a lawsuit brought on behalf of a company by one of its shareholders — filed in the Delaware Chancery Court. The claim alleged that BC Partners structured a downstream merger involving PetSmart Inc. in a manner that was financially unfair to Chewy investors and exposed them to undue tax liabilities. The settlement requires approval from Chancellor Kathaleen St. Jude McCormick of the Delaware Chancery Court before becoming final. The underlying allegation centred on the mechanics of the PetSmart-Chewy corporate relationship: Chewy was originally carved out of PetSmart following BC Partners' leveraged buyout — a transaction in which a buyer uses a significant proportion of borrowed money to finance the acquisition — of PetSmart in 2015. The subsequent restructuring of that corporate group allegedly created tax exposures for Chewy's public shareholders. For UK-trained lawyers, the case is noteworthy because BC Partners is a major London-based PE fund, meaning the conduct of a European sponsor is being adjudicated in a US court. The Delaware Chancery Court is the pre-eminent forum for US corporate law disputes, and its decisions on fiduciary duty and fairness standards carry significant persuasive weight globally. The $29.5 million settlement, if approved, closes a long-running dispute that had created reputational and financial uncertainty for the fund.
Why this matters
This settlement illustrates the cross-border litigation exposure that London-based PE sponsors carry when their US portfolio companies are publicly listed. BC Partners — a firm with significant UK and European operations — faced fiduciary duty claims in Delaware arising from deal structuring decisions taken in connection with a major buyout. The 'why now' element is that corporate law plaintiffs in the US are increasingly targeting PE sponsors directly, rather than just portfolio company directors, when post-buyout restructurings are alleged to have disadvantaged public minority shareholders. For UK disputes and PE practices, this creates demand for advice on how European sponsors structure US exits and carve-outs to minimise Delaware fiduciary exposure. The Delaware Chancery Court's standard of review — particularly the 'entire fairness' test applied when a controlling shareholder is on both sides of a transaction — is the key legal concept at stake, and UK lawyers advising PE clients need to understand it.
On the Ground
A trainee on a dispute of this nature would prepare chronology documentation tracing the corporate history of the PetSmart-Chewy relationship, and would assist with witness statement bundles and disclosure review and categorisation of transaction documents produced in discovery. Court filing and service coordination with US local counsel would also be a trainee-level task.
Interview prep
Soundbite
London PE sponsors structuring US exits now face Delaware fiduciary liability for tax consequences they impose on public minorities.
Question you might get
“What is the 'entire fairness' standard under Delaware corporate law, and when would a PE sponsor face personal exposure to that standard of review?”
Full answer
A Chewy investor has agreed a $29.5 million settlement with BC Partners, the London PE firm, over claims that a PetSmart downstream merger was structured unfairly and created tax liabilities for Chewy's public shareholders. The case matters because it demonstrates that European PE sponsors are directly in the frame for Delaware fiduciary duty claims when their US portfolio restructurings disadvantage listed minority shareholders. The wider picture is a sustained plaintiff-side push in the US to hold PE sponsors — not just portfolio company boards — to the 'entire fairness' standard when they sit on both sides of a related-party transaction. My view is that this will prompt London PE firms to invest more heavily in pre-deal Delaware law advice when structuring carve-outs and public company exits involving US-listed entities.
My notes
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