SW Legal Educational Publishing

Quaker Oats May Have Breached Duty to Shareholders During Snapple Acquisition
Description Court of Appeals reinstated shareholder suit against Quaker Oats that stems from its purchase of Snapple, which caused Quaker stock to fall. Prior to purchase, Quaker had make optimistic statements about its debt position and earnings position that were wiped out by the purchase.
Topic Securities Law
Key Words Securities Fraud, Duty to Shareholders
C A S E   S U M M A R Y
Facts In 1994, Quaker Oats bought Snapple for $1.7 billion. Soon before the announcement, Quaker had stated that its earnings growth should be seven percent and that its debt ratio was favorable. The takeover, financed by debt, kicked up Quaker's debt ratio and its stock fell about 10 percent. Certain shareholders sued, claiming the earnings projects were inflated given that management knew of the coming acquisition. Trial court dismissed the suit. Quaker's statements about the company's debt and its earnings projections were immaterial because, at the time, the statements were reasonable. Plaintiffs appealed.
Decision Reversed. When Quaker made the debt ratio and earnings projection statements, it knew the takeover of Snapple was likely, which would make the statements "illusory." The statements could be material to investors' decisions under the materiality standard that applies under Rule 10b-5. If the company expected the debt ratio to change, it may have had a duty to note that possibility.
Citation Weiner v. Quaker Oats Co., ---F.3d--- (1997 WL 693033, 3rd Cir.)
or
129 F.3d 310 (3rd Cir., 1997)

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