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LERRO v. QUAKER OATS CO.

September 23, 1995

JOSEPH LERRO, Plaintiff,
v.
THE QUAKER OATS COMPANY, LOOP ACQUISITION, CORP., and THOMAS H. LEE, Defendants. JOHN DUTY, Plaintiff, v. THE QUAKER OATS COMPANY, LOOP ACQUISITION, CORP., and THOMAS H. LEE, Defendants.



The opinion of the court was delivered by: CHARLES RONALD NORGLE, SR.

 CHARLES R. NORGLE, SR., District Judge:

 Before the court are two motions to dismiss--one filed in each case. Pursuant to 28 U.S.C. § 636(b)(1)(B), the court referred all pretrial matters for both cases to the magistrate. Magistrate Rosemond signed his eleven page report and recommendation on August 1, 1995, addressing both motions. The court finds the report and recommendation to be thorough and accurate, and was aided by the recommendation. For the reasons that follow, the court grants both motions to dismiss.

 I.

 These cases stem from the 1994 purchase of Snapple Beverages Corp. ("Snapple") by The Quaker Oats Company ("Quaker"). Plaintiffs complain that the manner in which Quaker purchased Snapple violated the Securities Exchange Act of 1934. 15 U.S.C. § 78n(d)(7). The following is the magistrate's concise rendition of the facts:

 
Plaintiffs Lerro and Duty are common stockholders of Snapple, which is a beverage producer. Defendant Quaker Oats, which sought to merge with Snapple, produces packaged foods and pet products. Defendant LOOP Acquisition is a wholly owned subsidiary of and was formed by Quaker Oats to facilitate the merger with Snapple.
 
Thomas H. Lee is also a defendant. At the time that Lerro filed suit, Lee had been a director of Snapple since April of 1992 and as a result of this position, beneficially owned approximately three percent of Snapple's outstanding public shares. Lee was also the general partner of, and investment advisor to, Thomas H. Lee Equity Partners, which provided Lee with beneficial ownership of an additional 31.9% of Snapple stock. Finally, Lee was the president and controlling shareholder of Thomas H. Lee. Co., which in turn owned 80% of Select Beverages, Inc., a beverage distributing company. All told, Lee personally and through various related entitles controlled about 70% of Snapple's common stock.
 
On November 1, 1994, Quaker Oats and Snapple entered into a Merger Agreement, which provided that LOOP Acquisition would commence a tender offer on November 4, 1994 for all outstanding shares of Snapple common stock.
 
Also on November 1, Snapple and Quaker Oats entered into several collateral agreements, including a Distributor Agreement. That particular agreement, which became effective upon the consummation of the Tender Offer, granted Select Beverages the perpetual and exclusive right to distribute Snapple and Quaker Oats' products in certain parts of the country. Quaker Oats did not enter into a similar deal with any other Snapple distributor. According to Quaker Oats, however, the newly consummated Distributor Agreement merely modified an earlier agreement which granted Select Beverages similar exclusive distribution rights.
 
On November 2, 1994, the Dow Jones News Wire publicly announced the merger between Snapple and Quaker Oats.
 
LOOP Acquisition commenced the Tender Offer on November 4, 1994. LOOP Acquisition paid each shareholder, including Lee, $ 14.00 cash per share during the Tender Offer. On December 5, 1994, Loop Acquisition consummated the Tender Offer.

 (Report and Recommendation at 2-3.)

 II.

 The issue before the court is whether Quaker Oats violated 15 U.S.C. § 78n(d)(7) and Rule 14d-10(a) of the Securities and Exchange Commission ("SEC"). *fn1" Rule 14d-10(a) provides that "no bidder shall make a tender offer unless . . . the consideration paid to any security holder pursuant to the tender offer is the highest ...


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