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Deals

Judge rules AriZona iced tea co-founder, son owed $1 billion for buyout

NEW YORK (Reuters) - A New York state judge ruled on Tuesday that the privately held producer of AriZona iced tea should pay about $1 billion to buy out the half of the beverage maker owned by the co-founder and his son.

Nassau County Supreme Court Justice Timothy Driscoll arrived at the amount the company must pay John Ferolito and a trust benefiting his son after determining the value of Beverage Marketing USA Inc and its related entities approached $2 billion in 2010.

The valuation was below the $3.2 billion that Ferolito argued the company was worth but above the $426 million its managing co-founder, Domenick Vultaggio, had pegged as its value.

Driscoll’s ruling followed a nonjury trial and six years of litigation between Ferolito and Vultaggio, onetime friends from Brooklyn who launched AriZona in 1992. It is now the top-selling ready-to-drink tea in the United States.

Ferolito has argued the company was worth billions of dollars, pointing to offers from suitors including Tata Global Beverages Ltd, Nestlé SA and Coca-Cola Co.

Vultaggio countered that the company faced insolvency if valued too high. Driscoll declined to adjust the value of the Ferolitos’ shares based on that claim.

“Such an adjustment could provide Vultaggio with a windfall he could easily exploit if he decided to sell the shares he acquires from the Ferolito parties,” he said.

Both sides welcomed the ruling, although Vultaggio’s lawyer, Louis Solomon, said an appeal was possible.

“AriZona welcomes the fact that the court rejected the insane and fabricated valuations proposed by Ferolito while recognizing the true uniqueness of AriZona,” Solomon said in a statement.

Solomon pointed to part of the judge’s ruling where he said he would consider the company’s ability to pay during further proceedings to determine the exact amount owed and the terms and conditions of the payout. A hearing is scheduled for Nov. 3.

Nicholas Gravante, a lawyer for Ferolito, said in a statement: “We are grateful for today’s decision that draws years of protracted, unnecessary litigation to a close.”

Woodbury, New York-based Beverage Marketing and its related companies have 1,000 employees and annual sales of $1 billion, Solomon has said.

AriZona had a 37.4 percent share for U.S. ready-to-drink tea by case volume in 2013, according to Beverage Digest, ranking No. 1 above PepsiCo Inc’s Lipton and Coca-Cola products.

In 1998, as part of an agreement in which Vultaggio would operate the company while Ferolito moved to Florida, the two agreed to restrict transferring company stock to outsiders.

By 2005, Ferolito wanted to sell his stake and began pushing for a corporate sale. Vultaggio refused, prompting Ferolito to ask a court to declare the stock sale restrictions unenforceable.

After unfavorable court rulings, Ferolito filed a lawsuit to dissolve Beverage Marketing. Vultaggio later elected under state law to buy out his partner.

The case is Ferolito v. AriZona Beverages USA LLC, et al, New York Supreme Court, Nassau County, No. 004058-12.

Reporting by Nate Raymond in New York; Editing by Jeffrey Benkoe, Meredith Mazzilli, David Ingram and Jonathan Oatis

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