Investors Ask Court to Cap Pepsi's Buyout of Bottlers

Pepsico is misusing its control of its two largest bottlers to squeeze out the public shareholders of PepsiAmericas and Pepsi Bottling Group before the summer season boosts the price, investors say in a Delaware state court lawsuit.

A suit filed by two municipal pension funds asks the Delaware Chancery Court to cork the going-private buyout at least until the officers and directors of the bottlers can seek a better offer than the "self-dealing" bid made by the snack product giant.

The Southeastern Pennsylvania Transportation Authority and the Philadelphia Public Employees Retirement System say that Pepsico, a North Carolina company, holds a controlling interest in both PepsiAmericas and Pepsi Bottling - both chartered in Delaware.

More importantly, however, Pepsico controls vital bottling contracts without which the two bottlers could not survive, the suit says.

Pepsico is using those contracts to force the bottlers' boards to accept a meager premium over the currently depressed market price, the pension funds complain.

Parent Pepsi's "paltry premium" of $17 over the current market price of the bottlers stock is timed to precede the usual summer uptick and was approved only because the boards of those two companies are fearful for their business relationships with Pepsico, the suit says.

The suit also claims that the disclosures sent out to the bottlers' shareholders in advance of the merger contain material omissions and misstatements that make it impossible for investors to properly evaluate the going-private deal.

The plaintiffs allege breach of fiduciary duty against Pepsico's officers and directors.

They charge that that the corporate charters of the bottlers are invalid in that they purport to insulate the officers and directors from damages for ordinary breach of duty.

The plaintiffs ask the court to invalidate those provisions and to block the merger agreement.

No one was immediately available at the companies to comment on the lawsuit.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@ThomsonReuters.com.

The plaintiffs are represented by Michael Hanrahan, Paul Fioravanti Jr. and Laina Herbert of Prickett, Jones & Elliott in Wilmington, Del., and Marc Topaz, Lee Rudy, Michael Wagner and J. Daniel Albert of Barroway Topaz Kessler Meltzer & Check in Radnor, Pa.