Shareholder anger that erupted over J. Crew's handling of its potential acquisition by TPG and Leonard Green & Partners has been noticed by other companies who are potentially being wooed by private equity funds.

The uproar has been a positive sign for shareholder rights. One example has been the sudden action taken by BJ's Wholesale Club to attract offers after months of inaction, despite knowing that there was interest in a deal. BJ's has hired Morgan Stanley to explore its options, which is a rejection of the type of back-room sweetheart deal that J. Crew's leader, Millard Drexler, put together. That deal was seen by shareholders as benefitting mainly Drexler and his private equity backers.

Drexler made his deal weeks before taking it to his board, then never seemed to make any genuine effort to try to see if there were better offers available. Angry shareholders sued, accusing the company of not using the go-shop period to turn up alternatives to the TPG/Leonard Green offer. The lawsuit was settled with a $10 million payment to the shareholders.

Leonard Green is also interested in BJ's, a $2.7 billion club retailer that is eclipsed by Costco and Wal-Mart.

Because BJ's has such solid cash flow and low debt, they could easily have other offers in addition to Leonard Green's. By allowing other offers, BJ's board is more likely to get the best price for shareholders if they decide to make a deal.

Leonard Green took a 10% stake in BJ's in July and said that they would be looking to buy the rest. Even though the notice could not have been more explicit, BJ's board took no action. Now, though, after seeing the J. Crew uproar has provoked BJ's into shopping around, San Diego shareholders' rights attorneys foresee that BJ's could still avoid a repeat of J. Crew's mistakes.

Source: New York Times "J. Crew Buyout Shows BJ's Directors What Not to Do" 2/3/2011