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Third Circuit Relies On Market Capitalization To Value Assets In Upholding Dismissal of Fraudulent Transfer Suit

April 9, 2007

A district court judgment dismissing a $500 million fraudulent transfer and breach of fiduciary duty suit against Campbell Soup Co., the former parent of Vlasic Foods International (“VFI” or “the debtor”), was affirmed by the United States Court of Appeals for the Third Circuit, on March 30, 2007. VFB, LLC v. Campbell Soup Co., 2007 WL 942360 (3d Cir. 3/30/07). VFI’s creditors, acting through an entity known as VFB, claimed that Campbell’s March 1998 $500 million stock sale (aka “leveraged spin-off” or “spin”) of its Specialty Foods division (“the division”), which included such subsidiaries as Vlasic (pickles) and Swanson (TV dinners), to VFI, another wholly owned subsidiary, was a fraudulent transfer because it rendered the subsidiary insolvent. The Third Circuit held that the district court correctly found that the division acquired by VFI was “worth well in excess” of the $500 million purchase price, and that the debtor was solvent at the time of the purchase. Relying on the district court’s market capitalization valuation of the acquired assets, the Third Circuit found that the debtor received reasonably equivalent value and that the its pre-spin directors did not breach their fiduciary duty to creditors.