Dr Pepper Hit With Investor Suit Over Keurig Deal Structure

By Jacob Rund

Dr Pepper Snapple Group Inc. and its directors are facing a would-be class action accusing the beverage maker of “manipulating” its pending $18.7 billion sale to Keurig Green Mountain Inc. so stockholders can’t challenge the deal price.

Two pension funds brought the lawsuit March 28 in Delaware Chancery Court, claiming Dr Pepper’s board pursued a deal structure that prevents shareholders from exercising their rights to appraisal. Under Delaware law, a target company’s stockholders that sit out a merger can petition the court to assess the “fair value” of their shares.

The funds also accuse the directors of breaching their fiduciary duties by issuing misleading disclosures to investors.

The class action follows three other investor-led lawsuits filed this month in federal district court that allege Dr Pepper had omissions or misstatements about the deal in its proxy material.

The Plano, Texas-based beverage producer announced the sale to Keurig, a privately held company, on Jan. 29. According to the pension funds’ complaint, rather than voting on a merger agreement, Dr Pepper stockholders were asked to vote on an amendment to the company’s charter that would more than double its outstanding shares. They were also asked to vote on the issuance of a majority of this stock to Keurig shareholders, which would own more than 85 percent of the combined company.

“The deal has been structured in a way only a contortionist can appreciate, in order to deny stockholders their rights,” the complaint said. The pension funds argue that the deal is a “straightforward corporate merger” that’s being disguised as something else to ensure there’s no appraisal option. Because cash consideration — $103.75 per share provided in a dividend — is provided to target stockholders, Delaware’s appraisal statute should be triggered, they said in the lawsuit.

Dr Pepper’s preliminary proxy statement “failed to provide notice” to shareholders of their right to demand appraisal, and “failed to provide sufficient information to allow for a fully-informed decision to demand appraisal,” according to the complaint.

The funds asked the state court to either enjoin the deal until appraisal rights are provided, or permit stockholders to petition the court for appraisal.

Dr Pepper didn’t immediately respond to a request for comment.

The case is City of North Miami Beach General Employees Retirement Plan, et al. v. Dr. Pepper Snapple Group Inc. , Del. Ch., No. 2018-0227, complaint filed 3/28/18 .

To contact the reporter on this story: Jacob Rund in Washington at jrund@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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