IN RE PILGRIM'S PRIDE CORPORATION DERIVATIVE LITIGATION
Submitted: December 21, 2018
M. Heyman, Melissa N. Donimirski, HEYMAN ENERIO GATTUSO &
HIRZEL LLP, Wilmington, Delaware; Jason M. Leviton, Joel A.
Fleming, BLOCK & LEVITON LLP, Boston, Massachusetts; Mark
Lebovitch, Edward G. Timlin, David MacIsaac, BERNSTEIN
LITOWITZ BERGER & GROSSMANN LLP, New York, New York;
Counsel for Plaintiffs.
G. Abrams, Michael A. Barlow, Andrew J. Peach, ABRAMS &
BAYLISS LLP, Wilmington, Delaware; Michael B. Carlinsky, Adam
M. Abensohn, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New
York, New York; Counsel for Defendants JBS, S.A., JBS USA
Holding Lux S.à r.l., William Lovette, Andre Nogueira
De Souza, Gilberto Tomazoni, Tarek Farahat, and Denilson
R. Shannon, Christopher N. Kelly, Jaclyn C. Levy, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Counsel for
Nominal Defendant Pilgrim's Pride Corporation.
plaintiffs are minority stockholders in nominal defendant
Pilgrim's Pride Corporation (the "Company"),
which is a Delaware corporation. They sued the Company's
controlling stockholder, JBS S.A. ("Parent"), which
is an entity organized under Brazilian law. They also sued
five individuals whom Parent elected to the Company's
board of directors (respectively, the "Director
Defendants" and the "Board"). All five
Director Defendants are executive officers of Parent or serve
as executive officers of its controlled subsidiaries. One of
the Director Defendants serves as the Company's CEO.
plaintiffs challenge a transaction in which the Company paid
$1.3 billion to buy one of Parent's other subsidiaries:
Moy Park, Ltd. (the "Acquisition"). The complaint
alleges that Parent needed to raise cash quickly after its
controlling stockholder agreed to pay a $3.2 billion fine to
the Brazilian government. Because Parent controlled the
Company and Moy Park, the plaintiffs assert that the
governing standard of review for the Acquisition is entire
fairness. The plaintiffs contend that as a self-dealing
fiduciary, Parent is obviously interested in the Acquisition
and must prove that it is entirely fair. Plaintiffs further
allege that because of their affiliations with Parent, all
five of the Director Defendants lack independence and
likewise must prove that the Acquisition is entirely fair.
complaint alleges that the Company did not engage in true
arm's-length bargaining with Parent. Among other things,
the Company permitted its management team and its financial
advisor to lead the negotiations, despite their lack of
independence from Parent. As part of the pseudo-negotiations,
the Company responded "in a constructive manner"
when Parent breached its exclusivity agreement with the
Company. As a result of a defective process, the Company
ultimately agreed to pay what was 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. Based on these allegations, the plaintiffs contend that
the complaint supports a reasonable inference that the
defendants will not be able to prove that the Acquisition was
moved to dismiss the complaint for lack of personal
jurisdiction, noting that the complaint does not allege that
Parent has any ties to the State of Delaware other than its
status as the controller of the Company. But on the same day
that the Acquisition was approved, the Board voted
unanimously to adopt a forum-selection bylaw, with the
Director Defendants whom Parent controlled constituting a
five-member majority of the nine-member Board. The bylaw made
the Delaware courts the exclusive forum for breach of
fiduciary litigation involving the Company. This decision
holds that on the facts alleged, Parent implicitly consented
to personal jurisdiction in this court for purposes of claims
falling within the forum-selection bylaw.
Director Defendants also moved to dismiss the complaint,
contending that it failed to allege any actionable
involvement in the Acquisition. The Board formed a committee
of independent directors (the "Committee") to
consider the Acquisition, and the Board delegated to the
Committee the exclusive authority to negotiate its terms and
determine whether the Company would proceed. The Committee
retained its own financial advisor and legal counsel,
negotiated with Parent, and approved the Acquisition. The
Director Defendants maintain that they approved the
Acquisition solely to ensure that it did not violate a
covenant in the Company's bond indenture.
Director Defendants-William Lovette and Andre Nogueira De
Souza- participated in the negotiation and approval of the
Acquisition to a far greater degree, rendering them
potentially liable for the allegedly unfair transaction. As
to the other three Director Defendants, although their
approval of the board resolution is a slim reed, it
constitutes sufficient involvement by conflicted fiduciaries
in the effectuation of a self-dealing transaction to warrant
denying their efforts to obtain dismissal at the pleading
facts are drawn from the plaintiffs' complaint and the
documents it incorporates by reference, including documents
that the plaintiffs obtained using Section 220 of the
Delaware General Corporation Law (the "DGCL"), 8
Del. C. § 220. Despite relying on these
documents, the plaintiffs did not attach them as exhibits to
their complaint. The defendants have supplied some of the
omitted documents, which the court can consider. See
Winshall v. Viacom Int'l, Inc., 76 A.3d 808, 818
(Del. 2013) ("[A] plaintiff may not reference certain
documents outside the complaint and at the same time prevent
the court from considering those documents' actual
terms." (alteration in original) (internal quotation
marks omitted)). Citations in the form "Ex. - at -"
refer to these documents, which the defendants attached to
their initial briefs as exhibits. See Dkts. 23, 41.
At this stage of the proceedings, the complaint's
allegations are assumed to be true. The plaintiffs also
receive the benefit of all reasonable inferences, including
inferences drawn from documents.
The Company, Parent, and Moy Park
Company sells chicken in the United States. Its stock trades
on Nasdaq under the symbol "PPC."
is one the largest meat processors in the world. At the time
of the Acquisition, Parent controlled the Company through its
ownership of 78% of the Company's common stock. Parent
also controlled the Company through its right to designate a
majority of the Board.
the Company's certificate of incorporation, the Board
consists of nine seats. Six seats are designated for
"JBS Directors," whom this decision calls
"Parent Directors." Three seats are designated for
"Equity Directors." A nominating committee populated
by Parent Directors nominates directors for the Parent
Director seats, and a nominating committee populated by
Equity Directors does the same for the Equity Director
seats. Parent has the right to veto the
nomination of an Equity Director, but only if Parent
"reasonably determines that such person (i) is unethical
or lacks integrity or (ii) is a competitor or is affiliated
with a competitor of the Corporation." Ex. 15 §
can vote its shares as it pleases for the Parent Directors,
meaning that Parent can determine who serves in those
positions. See Ex. 3 § 3.04(b). For the Equity
Directors, by contrast, Parent must vote its shares "in
the same proportion as the shares held by the Minority
Investors are voted for or against, not voted, or
abstained." Id. § 3.04(a). As a practical
matter, the Company's minority stockholders determine who
serves as an Equity Director.
time of the events giving rise to this litigation, the Equity
Directors were David Bell, Michael Cooper, and Charles
Macaluso. Each appears for pleading purposes to be an
independent, outside director. Four of the Parent Directors
served as executive officers of Parent or its
subsidiaries-defendants Andre Nogueira De Souza, Tarek
Farahat, Denilson Molina, and Gilberto Tomazoni. A fifth
Parent Director was William Lovette, the Company's CEO
and President. The final Parent Director was Wallim Cruz de
Vasconcellos, Jr., who has no alleged affiliation with Parent
or the Company other than his service as a Parent Director.
Park sells chicken in the United Kingdom. Before the
Acquisition, it was a wholly owned subsidiary of Parent.
Parent purchased Moy Park in 2015 for approximately $1.5
Parent Needs To Raise Cash.
Batista family controls Parent through a holding company. In
May 2017, the holding company agreed to pay a fine of $3.2
billion (R$10.3 billion) to the Brazilian government in
response to a wide-ranging investigation into the bribery of
government officials. Parent needed to raise cash quickly to
help its controlling stockholder pay the fine.
2017, Parent announced that Moy Park was for sale. Wesley
Mendonça Batista, who was serving as Parent's CEO
and who himself had pled guilty to a bribery charge and
agreed to pay a substantial fine, contacted Nogueira. Batista
told Nogueira that Parent would be interested in selling Moy
Park to the Company for £1.01 billion ($1.3 billion).
Nogueira shared the overture with Lovette, who engaged in
further discussions with Parent about the proposal.
The Initial Meeting With The Equity Directors
28, 2017, Lovette met with the Equity Directors. Other
attendees included bankers from Barclays Capital, Inc., who
were acting as the Company's financial advisor despite
having a longstanding relationship with Parent, and lawyers
from Paul, Weiss, Rifkind, Wharton & Garrison LLP.
Vasconcellos, one of the Parent Directors, also attended.
pitched the Equity Directors on having the Company acquire
Moy Park for £1.01 billion ($1.3 billion). He described
the acquisition as a "compelling opportunity" with
"a strong strategic rationale." Ex. 1 at 2. He
argued that even though Moy Park's facilities already
implemented "best practices," his management team
could "increase[e] efficiencies in operations and
had already prepared a presentation that valued Moy Park at
between £700 million and £1.415 billion. In
arriving at this range, Barclays projected generous growth in
Moy Park's revenue and EBITDA, even though Moy Park's
revenue had been flat over the previous three years. Barclays
also assumed £41.6 million in post-Acquisition
presented four financing alternatives for purchasing Moy
Park. In each case, Barclays assumed a purchase price of
£1.05 billion. Ex. 4 at 16.
3, 2017, the Board formed a special committee consisting of
the Equity Directors (the "Committee"). The Board
delegated to the Committee its "exclusive power and full
authority . . . to take all actions it considers necessary,
appropriate or desirable in connection with evaluating,
reviewing, negotiating and implementing the [Acquisition] and
any alternative thereto." Ex. 2 at '012. The Board
also resolved to "not approve or recommend the
[Acquisition] unless the [Acquisition] was approved by the .
. . Committee." Id.
Committee retained Evercore as its financial advisor.
Evercore informed Barclays that the Committee and its
advisors expected to lead the negotiations with Parent,
rather than having Company management and Barclays take the
lead. Notwithstanding the Committee's instruction,
Company management and Barclays continued to take the lead in
the negotiations with Parent.
Committee retained Paul Weiss as its legal counsel. Recall
that Paul Weiss had attended Lovette's meeting with the
Equity Directors on July 28, 2017, six days before the
formation of the Committee that ultimately became Paul
Weiss's client. At the pleading stage, this sequence
supports a reasonable inference that management had some
degree of involvement in the selection of the Committee's
Evercore's Initial Valuation
6, 2017, Evercore provided the Committee with its initial
reactions to Barclays' valuation analyses. Evercore told
the Committee that it planned to work with Barclays to
conduct due diligence but would perform its own valuation
work. Evercore also informed the Committee that it would
analyze any efficiencies that the Company could achieve on a
stand-alone basis, independent of the Acquisition, as
distinct from synergies that could only be generated as a
result of the Acquisition.
18, 2017, Evercore provided the Committee with its
preliminary valuation analysis. In its presentation, Evercore
relied on management's projections and synergy estimates,
which yielded results nearly identical to Barclays'
calculations. Evercore expressed 80% confidence in the
Company's ability to realize the synergies. Without
synergies, Evercore valued Moy Park in the range of
£700 million to £1.038 billion ($905 million to
$1.132 billion). The complaint does not describe
Evercore's with-synergies valuation, and neither side
provided copies of the underlying materials.
told the Committee that Parent hoped to sell Moy Park within
three weeks and that other suitors had executed
non-disclosure agreements. The Committee discussed whether
Parent "might be willing to accept a lower price from
the Company . . . than from third parties" because
Parent "would retain Moy Park's earnings in such a
transaction." Ex. 5 at 4.
Evercore's presentation, Lovette and Sandri joined the
meeting. Lovette endorsed the deal and expressed confidence
in the estimated synergies. Lovette then disclosed the
conversation he had with Nogueira in June 2017 about
Parent's interest in the Company. Lovette did not
disclose Nogueira's earlier conversation with Batista.
The Committee Offers £925 Million.
27, 2017, the Committee met with Barclays and members of
Company management. Barclays presented an updated valuation
of Moy Park. Sandri updated the Committee on "exchanges
between Parent and the Company." Ex. 7 at 1-2.
excusing Barclays and the members of management, Evercore
presented an updated valuation. It closely resembled the
firm's analysis from July 18, 2017, except this time
Evercore did not provide an analysis of Moy Park's value
without synergies. Evercore reported that nine strategic
bidders had signed non-disclosure agreements. The Committee
decided to submit an indication of interest "at a
cash-free, debt-free value of £925 million." Ex. 7
31, 2017, news outlets reported that multiple parties were
interested in acquiring Moy Park. Later that day, the
Committee directed Evercore to submit the Company's
indication of interest and to ask for exclusivity.
Parent Counters at £1.05 Billion.
August 4, 2017, Russ Colaco, Parent's Chief Financial
Officer, asked the Company to pay £1.05 billion for Moy
Park. He also conveyed that Parent wanted to sign and close
the deal simultaneously before August 15. To give the
Committee the first chance at the deal, he proposed to delay
seeking third-party bids until August 17.
the Committee met later that day, Barclays and Evercore
reported that financing a simultaneous sign-and-close
structure would be more expensive than a traditional deal.
The Committee discussed making a counteroffer in a range of
£925 to £950 million, but deferred making a
decision on a specific figure.
August 5, 2017, the Committee met with Barclays and members
of Company management. They advised the Committee that a
simultaneous signing and closing would result in $15 million
of additional financing costs compared to the alternative.
The Committee decided to counter at "£955 million
for a transaction with a bifurcated signing and closing that
include[d] a customary marketing period" or
"£940 million for a transaction with a
simultaneous signing and closing." Compl. ¶ 72
(alteration in original).
afternoon, Parent responded that it had received another
offer at approximately the same valuation. Parent declined to
commit to exclusivity.
The Company Bids £975 Million.
the following week, Parent's counsel informed Paul Weiss
about Batista's original conversation with Nogueira. This
was the first time that Paul Weiss learned about the
conversation. Parent's counsel told Paul Weiss that
Batista's references to pricing were not intended as a
separate call, Colaco told Barclays that Parent had received
a bid of £1.05 billion and that they expected that
amount to increase to £1.1 billion. Colaco subsequently
told Barclays that Plukon Food Group was the high bidder.
With Plukon's offer in hand, Parent made a revised
demand: "a purchase price of £1 billion (~$1.3