(CN) – The Delaware Chancery Court denied a meat producing parent company’s motion to dismiss an action brought by a subsidiary’s shareholders who claim the parent company failed to engage in “true arm’s-length when negotiating the purchase of another subsidiary.
Chicken producer Pilgrim’s Pride Corporation’s shareholders brought the suit against its parent, JBS S.A., arguing the parent company failed to engage in “true arm’s-length bargaining,” when the parent offered to sell Pilgrim’s Pride a fellow chicken producer and subsidiary, Moy Park Ltd.
According to the original complaint, JBS found itself in need o funds to pay a $3.2 billion (USD) fine to the Brazilian government arising from an investigation into bribery of government officials.
“The company permitted its management team and its financial advisor to lead the negotiations, despite their lack of independence from parent,” the shareholders claimed. “As part of the pseudo-negotiations, the company responded ‘in a constructive manner’ when parent breached its exclusivity agreement with the company.”
According to the ruling, the parent company owned 78 percent of Pilgrim’s Pride’s common stock and controlled the majority of the company’s voting power.
Due to the nature of the transaction between Pilgrim’s Pride and its parent, the company agreed to pay what the shareholders described as “effectively the same price that parent demanded in its opening ask, even though that price was higher than what the company’s internal analyses supported and what strategic bidders were willing to pay,” according to the ruling.
Shareholders argued that under the circumstances of the transaction, the acquisition was unfair.
JBS moved to dismiss Pilgrim’s Pride’s action, claiming the Delaware Chancery Court lacked personal jurisdiction for the matter, according to the ruling.
Vice Chancellor J. Travis Laster disagreed with JBS’s jurisdiction argument, citing a forum-selection bylaw adopted by the parent company board. Laster found it would be “reasonable to infer that the board adopted the forum-selection bylaw intending that it would apply to any Delaware law claims that a stockholder plaintiff might bring challenging the acquisition.”
“In my view, under these facts, parent consented implicitly to the existence of personal jurisdiction in Delaware when its representatives on the board participated in the vote to adopt the forum-selection bylaw,” Vice Chancellor Laster wrote. “This is a case governed by Delaware law in which the State of Delaware has a substantial interest.”