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PEPSICO, INC. v. W. R. GRACE & CO.

December 31, 1969

Pepsico, Inc., Plaintiff,
v.
W. R. Grace & Co., and Philip Morris, Inc., Defendants.


Murphy, District Judge.


The opinion of the court was delivered by: MURPHY

MURPHY, District Judge:

Defendants move to dismiss the complaint for lack of jurisdiction over the subject matter or, alternatively, for summary judgment.

 Plaintiff's first two claims are based upon an alleged violation of section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) *fn1" and Rule 10b-5 of the Securities and Exchange Commission rules (17 C.F.R. § 240.10b-5). *fn2" Its other two claims are based upon pendent jurisdiction.

 At issue is whether there was on May 8, 1969, a contract by Grace to sell and Pepsico to purchase Grace's 53% stock interest in Miller Brewing Company; and if there was, did the defendant Grace and/or Philip Morris use any manipulative or deceptive device or contrivance in contravention of Rule 10b-5.

 It is plaintiff's submission that on May 8th "the parties reached an (oral) agreement that Grace was to sell and Pepsico was to buy the Miller shares for a price of $120 million, payable $20 million in cash at the closing and $100 million by promissory note of Pepsico payable in five years bearing interest at 6 1/2% and redeemable by Grace from Pepsico at face at any time between September 30, 1969, and November 30, 1969. This agreement was subject to approval by the board of directors of Grace and negotiation of a definitive purchase agreement. Immediately upon reaching this agreement Grace and Pepsico jointly announced it to the press."

 Defendants submit that the understanding of May 8th could not have been a contract to purchase Grace's Miller stock since it expressly contemplated the negotiation and delivery of just such a contract at some indefinite time in the future. In support defendants refer to four written documents; the authenticity of each has not been controverted. The first is the joint press release dated May 8, 1969, on plaintiff's stationery, which reads in part:

 
"PEPSICO TO BUY INTEREST IN MILLER BREWING
 
NEW YORK, May 8, 1969 - PepsiCo, Inc. and W. R. Grace & Co. announced today that they had reached agreement in principle for the purchase by PepsiCo of Grace's 53 percent stock ownership in Miller Brewing Company for $120 million in cash and notes. The transaction is subject to approval by the board of directors of Grace and negotiation of a definitive purchase agreement."

 The second is a letter dated May 9, 1969, prepared by plaintiff on its stationery which reads:

 
"May 9, 1969.
 
W. R. Grace & Co.
 
7 Hanover Square
 
New York, New York 10005
 
Gentlemen:
 
This will confirm our agreement in principle that you will sell to us 3,243-4/9 shares of the issued and outstanding capital stock of Miller Brewing Company, a Wisconsin corporation, comprising approximately 53% of the issued and outstanding capital stock of that company, for $120 million.
 
We are to pay you the purchase price in the following manner:
 
1. $20 million in cash at the closing (tentatively scheduled for June 2).
 
2. $100 million by means of a five-year 6 1/2% note of PepsiCo.
 
In order to assure you that you will be able to dispose of the note at par, it is further understood that you will have a right to demand payment of the full principal amount of the note commencing September 30, 1969.
 
This agreement in principle is subject to negotiation and execution of a mutually satisfactory purchase agreement and neither of us will be under any legal obligation with respect to this transaction unless and until such an agreement is executed and delivered.
 
If the foregoing correctly sets forth our understanding, kindly so indicate by executing the attached duplicate hereof and returning it to us.
 
Very truly yours,
 
PEPSICO, INC.
 
By /s/ Robt. J. ...

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