Menard ousts Hilbert from investment firm

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Steve Hilbert has been ousted as CEO of Indianapolis-based MH Private Equity after a bitter battle with John Menard, the hardware store king who financed the $500 million private equity firm.

John Menard Menard

Menard’s company, Merchant Capital LLC, on Feb. 19 won a temporary injunction against Hilbert from a state court judge in Eau Claire, Wis., where the Menard Inc. hardware store chain is headquartered. That decision was the culmination of an 18-month dispute between Hilbert and Menard, who had been close friends for more than two decades.

Now, Menard Inc. and Merchant Capital are managing the three companies that MH Private Equity’s funds own and have indicated they want to sell them. The three together employ about 825 people, including about 275 at Indianapolis-based New Sunshine LLC, a maker of tanning lotions and creams.

Steven Hilbert Hilbert

Eric Weber, the president of New Sunshine, and Scott Matthews, the company’s senior vice president, were let go on March 1, according to sources with knowledge of the situation.

Menard wanted Hilbert out because MH Private Equity’s investments have lost 70 percent of their value, according to a lawsuit filed by Merchant Capital and Menard Inc. in Wisconsin in November. MH Private Equity spent $495 million to buy or invest in eight companies. Yet those investments have lost $344 million of their value, the lawsuit stated.

Not only that, Menard, 73, contends that Hilbert offered a “kickback” to Menard’s own lawyer and then-fiancée to persuade a reluctant Menard to make his initial $400 million investment that created MH Private Equity in 2005. And Menard also claims that Hilbert was filing redundant invoices for management or advisory fees to enhance his own income.

“Milking as much money as possible out of [MH Private Equity] and Merchant Capital is, and always has been, their primary goal,” wrote Menard’s attorneys about Hilbert and his team.

But Hilbert, 67, sees the situation differently. In a response to Menard’s suit filed in Wisconsin, he argues it was Menard who pushed him to start a fund with Menard as the sole investor. And Hilbert contends Menard was informed monthly about the funds’ progress and potential investments.

Hilbert also said the companies MH Private Equity owns have generated enough gains for MH Private Equity to pay Menard $44.7 million—even though the operating agreement does not require such payments.

In addition, Hilbert notes the three companies, plus a $15 million stake in a New Jersey satellite company, have not actually realized any losses, even though their performance has been affected by the global recession and financial crisis of 2008, and the slow recovery since then.

menard-factbox.gifThe only loss came on MH Private Equity’s $200 million stake in Centaur LLC Inc., the Indianapolis-based casino company that went bankrupt in 2010. MH Private Equity lost its entire investment.

Finally, Hilbert’s attorneys note that the $15.3 million in management fees that Hilbert’s entities have received from Menard are still $5.75 million short of what they are actually owed. Hilbert countersued Menard in January in an attempt to recover those fees and to stop Menard’s effort to remove Hilbert and his wife, Tomisue, as managers of the MH Private Equity funds.

“To John Menard, Hilbert and the Fund Managers are just like a cashier at the local Menards store,” wrote Hilbert’s attorneys in a Feb. 1 memorandum filed in Wisconsin. They added, “When he wants to get rid of somebody, he wants it right now—don’t let the facts get in the way, and never mind the niceties of the law.”

Hilbert’s attorneys plan to appeal the temporary injunction ruling from Wisconsin Judge Michael Schumacher, once the judge enters a written order. And no matter what happens on appeal, the two sides still must battle in court over whether Hilbert’s performance as manager of MH Private Equity has given Menard grounds to permanently remove him.

“The operating agreement says the managing member [Hilbert’s entity] can be removed ‘if there’s cause for removal,’” said Rich Kempf, an attorney at Taft Stettinius & Hollister LLP in Indianapolis, who is representing Hilbert. He added of the Menard parties, “They said they had a right to remove with or without cause.”

Hilbert referred questions on the case to Kempf.

John Menard did not respond to a request for an interview.


On July 31, 2011, it appeared Hilbert and Menard were destined to be close friends for life.

They spent that day the same way their relationship had started more than 20 years earlier—watching auto racing at the Indianapolis Motor Speedway.

At one point, Hilbert sponsored some of the racing teams Menard owned via the company Hilbert co-founded, Carmel-based insurance giant Conseco Inc.

And in the decade since Hilbert stepped down as CEO of Conseco in 2000, he and his wife often vacationed with Menard, even hosting Menard at the Hilberts’ home in St. Martin.

So when Menard’s son Paul won a stunning victory that day in the Brickyard 400 race, it was natural that Steve and Tomisue Hilbert joined John Menard and his son’s team in the winner’s circle.

But in little more than three weeks, their clubby relationship broke down.

On Aug. 24, Merchant Capital sent a letter to Hilbert saying it would not pay all the management fees Hilbert said were due.

The letter cited two “independent” valuations of the MH Private Equity investments, which valued them at $78 million to $125 million, using a “mark-to-market” method of analysis.

Those valuations were a far cry from the most recent estimate Hilbert had given Menard, in March 2011, which claimed the MH Private Equity companies were worth $380 million to $484 million.

Hilbert had agreed to a change in how his management fees were calculated in 2008, but this time he said no. He reminded Menard that the MH Private Equity operating agreement required Hilbert’s management fees to be calculated on the purchase price of the companies, not on their current value.

Instead, Hilbert offered to buy out Menard’s interest in MH Private Equity for $150 million. But Menard refused.

Merchant Capital sent checks to Hilbert for a reduced amount of MH Private Equity’s management fees. Hilbert sent them back.

In early 2012, Hilbert asked Menard to open a $20 million line of credit for Entertainment Publications LLC, an MH Private Equity company in Michigan that was having cash-flow issues.

In a response, Menard Inc. attorney James Anderson said Merchant Capital would give the money only if Hilbert agreed to amend the MH Private Equity operating agreement so that Hilbert and his team could be removed as manager of the funds “without cause at any time.”

“The performance of the portfolio companies in MH Private Equity Funds I and II has been very disappointing,” Anderson wrote on Feb. 28, 2012. He noted the $200 million loss on Centaur and said the three entities MH Private Equity purchased to form New Sunshine were now worth “little more than half” the $203 million paid for them.

Hilbert said the change in the operating agreement was unacceptable.

Three months later, Menard decided it didn’t need Hilbert’s permission to remove him. On June 4, Merchant Capital sent a letter to Hilbert saying it was removing him as CEO of MH Private Equity Fund I, the entity that owns the three companies and the satellite investment. Merchant Capital cited breach of contract and fiduciary duty.

On June 26, Merchant Capital sent another letter removing Hilbert as CEO of MH Private Equity Fund II, the entity that invested in Centaur. Merchant Capital also has filed suit in Indianapolis seeking the formal dissolution of MH Private Equity Fund II.

Hilbert responded that Merchant Capital had no right to remove him unilaterally. He continued to oversee the MH Private Equity investments and make decisions about them.

Finally, in November, Merchant Capital went to court to remove Hilbert.

“Merchant Capital can properly execute on plans to exit the stale Fund I investments,” the Menard attorneys wrote in their lawsuit, “only if those investments are in the control of a manager that is chosen by Merchant Capital in the best interest of Fund I and fulfills its duties.”


  • Menard Should Have Taken The Offer
    Menard Should Have Taken the $150M Offer from Hilbert. If he had any faith in his own "independent" appraisals, then he would have netted 25 to 70M$ in excess of those appraisals. Since he is worth a reported 5 to 8 billion, he could probably have then made use of the loss. Hard to understand why being friends for so long things couldn't have been worked out. Sounds like Menard has an ax to grind to me rather than working out something with Hilbert. He also got a 10% return so far on his money and who knows how much the companies might come back over time. If Hilbert was willing to pay 150M, he obviously believes the companies are worth more than the appraisals.

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