Central Valley farmer Dan Gerawan is suing investment firm Paine Schwartz, the owner of Prima Wawona, for allegedly intentionally tanking his former company for financial gain.
Gerawan, who owns a 25 percent stake in Prima Wawona, filed the lawsuit this week in the Delaware Chancery Court.
The backstory: In 2019, Gerawan merged his company, Gerawan Farming, with Wawona Packing, which had previously been acquired by Paine Schwartz in 2017, to become the largest stone fruit producer in the world.
- While Paine Schwartz took majority control of the merged company, the deal had Gerawan stay on as CEO until he was ousted in December 2020.
- Since Gerawan’s exit from management, Prima Wawona has lost nearly all of its value, as The Sun previously reported. According to private market holdings the Maine Public Employees Retirement System has in Paine Schwartz, Prima Wawona reportedly lost 96 percent of its value.
The big picture: Gerawan, through his Nevada-based holding company, is suing Paine Schwartz, former Prima Wawona CEO Eric Beringause and board member Lutz Goedde for breach of fiduciary duty, claiming the company’s loss in value is due to “destructive management.”
- According to the lawsuit, Paine Schwartz drained over $24 million in cash from the company in less than four years and used its control of Prima Wawona to enrich McKinsey & Company, a consulting firm that has long-standing ties to the investment firm. The lawsuit states that many Paine Schwartz employees are former employees of McKinsey & Company.
- “Paine continued to cause [Prima Wawona] to pay millions in fees to those advisors despite obvious signs that they were either performing poorly or doing nothing at all,” the lawsuit reads.
- The lawsuit also claims that Paine Schwart’z designees on the Prima Wawona board demanded that the company pay an additional $10 million to McKinsey & Company that was not owed under any written agreement even as the company became insolvent this year.
Go deeper: The alleged plan to tank the company and enrich McKinsey & Company started in late 2020 with the removal of Gerawan, the lawsuit filed in Delaware Chancery Court claims.
- Gerawan claims that in November 2020 Paine Schwartz secretly solicited bids from consulting firms to restructure Prima Wawona and never involved the full board in such a discussion, breaking the company’s own governing policies.
- Paine Schwartz initially identified AlixPartners as the top consulting firm for the restructuring, noting that McKinsey & Company’s proposal lacked specificity and would have cost around $4 million more. Yet Paine Schwartz moved ahead with McKinsey & Company for around $7 million, hiring the firm in secret without board knowledge or approval.
- The lawsuit also accuses Beringause of hiring Edgewood Consulting, his former employer, to take over Prima Wawona’s marketing for $1 million without consulting the board.
- Further, Gerawan claims that McKinsey & Company failed to deliver the work it was hired for as Paine Schwartz “consistently acted as McKinsey’s cheerleader.”
- “In 2021 and 2022, Paine, McKinsey, and Beringause transformed the Company from a respected and admired brand into a worthless shell with no market value other than its landholdings.”
