Keystone Food Holdings Ltd. v. Tyson Foods, Inc.

William Balden Adams, Blair Alexander Adams, Michael Barry Carlinsky, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, for Plaintiffs.

Justin Nessim Kattan, Ulyana Bardyn, Sandra Denise Hauser, Douglas W. Henkin, Stephen Godfrey Della Fera, Dentons US LLP, New York, NY, for Defendants.

OPINION AND ORDER

ANDREW L. CARTER, JR., United States District Judge:

This is a multi-billion-dollar dispute between two highly sophisticated parties. The conflict arises from the negotiated sale of Plaintiff Keystone Foods Holdings Limited (n/k/a Beef Holdings Limited) to Defendant Tyson Foods, Inc.

The instant motion is Tyson's motion to compel arbitration and stay proceedings with respect to Counts I–IV and VI of the Complaint and to dismiss Counts V and Counts VII–X. For the reasons that follow, that motion is GRANTED.

BACKGROUND

Prior to the sale at issue in this matter, Marfrig Global Foods S.A. ("Marfrig") owned and operated Keystone Food Holdings Limited through its wholly owned subsidiary, Beef Holdings. (Compl. at ¶ 18). Keystone is a leading supplier of poultry in the United States and the Asia-Pacific region. (Id. ) In 2013, Marfrig decided to sell Keystone through a two-phase auction. (Id. at ¶ 24). Approximately thirty potential bidders participated in the first phase of the auction, nine submitted bids, and five advanced to phase two. (Id. ) Tyson was one of the advancing five.

On June 29, 2018, the closing date of phase two, Tyson submitted a bid to Marfrig setting the Purchase Price of Keystone at $2.32 billion. (Id. at ¶ 26). On July 10, 2018, Tyson improved its bid to $2.4 billion based on an earnings before income, tax, depreciation, and amortization "multiple of 10.3, less $175 million in anticipated pricing adjustments, for a net price of $2.25 billion." (Id. ) Tyson's offer valued Keystone's U.S. operation at $1.6 billion, whereas a competing bidder interested only in purchasing Keystone's U.S. operation, allegedly had "expressed a desire to buy Keystone's U.S. (but not tis Asia Pacific operations) at a price between $1.6 billion and $1.75 billion." (Id. at ¶ 27).

The parties engaged in subsequent in-person negotiations, in which Tyson's CEO offered to buy all of Keystone, valuing its U.S. operation at $1.8 billion in exchange for Marfrig's agreement to stop negotiating with the competing bidder. (Id. at ¶ 28). The parties orally agreed to these terms. (Id. ) Four days later, on July 20, 2018, Tyson sent Marfrig a "Revised Proposal to purchase Keystone's global operations for "$2.7 billion, less $200 million in pricing adjustments for ‘certain agreed allowances,’ for a net price of $2.5 billion." (Id. at ¶ 29). In this letter, Tyson stated it was "prepared to acquire" Keystone for that price "with no further deductions." (Id. ; ECF No. 38-2 at 2–3). The letter does not commit the parties to enter into the transaction but reflects their agreement "to negotiate in good faith." (ECF No. 38-2 at 2–3). The letter also grants Tyson an exclusive 15-day period, until August 4, 2018, to complete the transaction." (Id. ; Compl. at ¶ 29). "[T]he parties agreed to a target signing date on or before August 6, 2018." (Compl. at ¶ 30).

According to Plaintiff, Tyson stalled the signing date. (Id. at ¶ 32). The parties reconvened on August 13, 2018 "to hammer out the final details of the transaction," but allegedly, "price was not on the list of issues for discussion, nor was it ever mentioned during the meeting." (Id. )

On August 15, 2018, the parties met again at Tyson's request. (Id. at ¶¶ 34–35). In that meeting, Tyson ultimately demanded a $330 million discount on the previously set Purchase Price. (Id. at ¶ 37). Having committed to shareholders that it would deleverage its balance sheet through the sale of Keystone by the end of the year," and having backed out of negotiations with other interested parties, Marfrig felt it had

limited options and decided to move forward with the sale. (Id. at ¶ 38). The parties signed a Stock Purchase Agreement ("SPA") at the revised $2.37 billion Purchase Price on August 17, 2018. (Id. at ¶ 39).

Under the SPA, Beef Holdings and Tyson made several representations and warranties to one another. (SPA § 3). The SPA provides that "[e]xcept for fraud ... the sole and exclusive remedy of Buyer or Seller ... after Closing for any breaches of or inaccuracy of any representation, warranty, covenant or agreement of Seller of Buyer, respectively, [t]herein or any other breach of or claim under this Agreement" shall be "the rights to indemnification provided for in ... Article 9." (SPA § 9.3.6). The SPA provides that the parties are not liable to one another for losses under $16.2 million and caps liability at $215.6 million. (Id. at §§ 9.3.1, 1.1 at 2, 5). The parties should "proceed in good faith" to resolve an indemnity dispute, but where resolution through negotiation is not possible, "such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction in accordance with Section 11.13." (SPA § 9.5.4). In § 11.13, the parties "submit to the exclusive jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State, City and County of New York ..." (SPA § 11.13).

Section 11.13 additionally dictates that "[n]otwithstanding anything to the contrary contained in [the] Agreement ... any and all matters or disputes under this Agreement with respect to IFRS compliance shall be finally determined by the members of the national office of Grant Thornton LLP that have not previously worked for Seller, Buyer or any of their respective Affiliates." (SPA § 11.13).

The SPA bars double recovery, stating that: "For the avoidance of doubt, no Indemnified Party shall be compensated more than once for the same Loss." (SPA § 9.3.3).

The SPA provides a four-step process through which to calculate the Purchase Price. First, Beef Holdings submits an Estimated Statement at least two days before Closing, calculating five categories of Purchase-Price Adjustments and the resulting Estimated Purchase Price. (Id. § 2.3.3). The five adjustment categories and resulting Estimated Purchase Price are to be determined in accordance with "Accounting Principles" as defined in the SPA. (Id. § 2.3.3). Under the SPA:

"Accounting Principles" means: (i) IFRS [International Financial Reporting Standards] in effect as of the date hereof; and (ii) to the extent not inconsistent with (i), [IFRS] the accounting methods, practices, procedures and policies used in preparation of the Financial Statements, including the reporting period closing dates, consistently applied.

(Id. § 1.1 at 1). " ‘Financial Statements’ has the meaning given in Section 3.7 of the SPA," (Id. § 1.1 at 6). Section 3 of the SPA is the Representations and Warranties section of the agreement. Section 3.7 provides that Seller will be required to provide Buyer with "financial statements ... for the periods ended December 30, 2017 ... (the ‘Financial Statements’) and December 31, 2016, and the unaudited master book financial statements ... used to prepare the consolidated financial statement ... for the periods ended March 31, 2018 and June 30, 2018 (the ‘Master Book Statements’)." (Id. § 3.7). Section 3.7 warrants that the Financial Statements were prepared "in accordance with IFRS and on the basis of the accounting principles, consistently applied, throughout the periods indicated." (Id. ). In other words, the Estimated Purchase Price and the underlying adjustment categories must comply with

IFRS and also, to the extent not inconsistent with the IFRS, with the same accounting procedures and policies Beef Holdings used to prepare the Financial Statements it represented and warranted to Tyson were accurate and IFRS-compliant.

The SPA further provides that specific adjustment categories should be calculated according to specific calculations provided in a Disclosure Schedule. Relevant here, the SPA states that "Indebtedness ... shall be calculated pursuant to, and on the same basis of, Section 1.1(A) of the Disclosure Schedule, which contains a sample calculation of the Indebtedness of [Beef Holdings] as of June 30, 2018." (SPA § 1.1 at 7–8). Similarly, "Quasi-Indebtedness" shall be calculated pursuant to "Section 1.1(D) of the Disclosure Schedule, which contains a sample calculation of the Quasi-Indebtedness of [Beef Holdings] as of June 30, 2018.

"Working Capital" is "the consolidated balance of the asset accounts ... listed on Section 1.1(F) of the Disclosure Schedule minus the consolidated balance of the liabilities accounts ... listed on Section 1.1(F) of the Disclosure Schedule ... which contains a sample calculation of Working Capital ... as of June 30, 2018." (Id. § 1.1 at 15).

Tyson had two days to submit written objections to the Estimated Purchase Price and its underlying calculations.

Second, within 60 days of Closing, Tyson delivers a Closing Statement containing its Purchase Price Adjustment calculations and its resulting Purchase Price. (Id. at § 2.4.1). Third, Beef Holdings delivers an Objection Notice, responding to the Closing Statement and identifying "those items or amounts as to which [Beef Holdings] disagrees." (Id. at § 2.4.2). "[D]uring the 15 days following delivery of the Objection Notice," the parties must "use their reasonable best efforts to reach agreement on the disputed items or amounts." (Id. at § 2.4.3). Fourth, if the parties are unable to resolve the disputed items or amounts, they must "cause the members of the national office of KPMG ... (the ‘Accounting Firm’), promptly to review [the SPA] and the disputed items or amounts for the purpose of calculating the Purchase Price." (Id. at §...