Campbell Spin-Off In Hot Water

The spin-off of the ill-fated Vlasic Foods International continues to haunt former parent Campbell Soup Co. in a case that could set some important legal precedents about a former owner’s overhanging liabilities in cutting subs loose. A block of Vlasic creditors, including some former employees, heated up their legal battle by alleging that Campbell knew that the pickle and frozen foods maker couldn’t make it as an independent company and engineered the 1998 spin-off to off-load hundreds of millions in debt. The charges were contained in an amendment to a complaint pending in the U.S. District Court in Delaware by the Houston-based law firm of Andrews & Kurth in connection with Vlasic’s bankruptcy. John A. Lee, lead counsel for the creditors, says that Vlasic’s debt was excessive and that it would have had to meet unreasonably high shipment levels to remain in business. The complaint, Lee said, also challenges Campbell’s efforts to get a tax-free ruling on the spin-off. He maintained that the tax basis was too high and that the cost savings asserted as business purpose were achieved by employee transfers to Vlasic. Robert Willens of Lehman Brothers said in a printed statement that there was at least one case in which the IRS cleared a spin-off based on cost savings.