Cranberry Stressline Archives

Nov. 29 - Dec. 6, 2000

The week of the Lawsuit against Ocean Spray

see below:

In the news:

Ocean Spray's timing of political donation linked to Japan trade mission by A.P.

"An aide for Cellucci said Ocean Spray, the nation's largest cranberry producer, did not receive special treatment because of its donations. Cellucci wanted to help an industry that employs more than 5,000 people in Massachusetts."

12/5/00 The Associated Press broke a story about Ocean Spray today. The headline reads "Ocean Spray a top donor to Cellucci, GOP: Cranberry company aided the governor's tax rollback committee on the eve of his trade mission to Japan" In fact, the growers' associations and independent cranberry companies also actively planned and participated in the trade mission. The mission also included representatives of the Massachusetts' financial, biotech and e-commerce industries.  Ocean Spray spokesman Chris Phillips is quoted "This is an important industry. It contributes a lot of jobs and open space," he said. "On that basis alone it's logical that (Cellucci) would include it in his journey to Japan." Read article  HERE .


The news on Pepsi and Quaker continues... 
Photo of new Pepsi - Quaker team 
"Other drinks makers thought to be in line for takeover include Arizona Beverage Co, Nantucket Nectars and Ocean Spray Cranberries." BBC Business

12/5/00 "But PepsiCo chairman and chief executive Roger A. Enrico said Quaker's clout in the noncarbonated beverage aisle could also pay dividends by getting retailers to provide shelf space for its Tropicana division's growing line of fruit drinks like Tropicana Twisters."  from the AP story in the Boston Globe.

12/4/00 "Underlying the deal is a trend in which consumers are forsaking sodas on a broad scale in favor of bottled waters, herb-laden teas and juice drinks with exotic extracts. To avoid missing the trend, the soft- drink giants have scrambled to buy the industry's top noncarbonated brands or develop their own." New York Times article.  

"Mr. Enrico said Wall Street hasn't focused on one of the bigger advantages of the Quaker deal -- Gatorade's fit with Tropicana 'shelf stable' drinks. These drinks, such as Tropicana Twister, are sold in the same supermarket aisles as Gatorade. Owning Gatorade and Tropicana will give PepsiCo far more clout with retailers -- and could sharply boost sales of Tropicana's shelf-stable drinks." The Wall Street Journal

"Owning so many strong brands should increase Pepsi’s clout among retailers, giving the company a greater advantage in the fight among beverage companies for precious space in convenience store coolers. “When the PepsiCo guy walks into 7-Eleven, they’re going to have to pay a lot more attention to him than they do to Coke,” said one Pepsi bottler. 'He’ll have Pepsi, Gatorade, SoBe, and Tropicana. He owns the refrigerator door.' " MSNBC

The Motley Fool notes that "Pepsi swigs Quaker Oats' Gatorade sports drink, which is tops in its market and carries a huge distribution and warehouse system that Pepsi hopes will increase efficiency and reach for its Tropicana brand."


1999 Cranberry Crop Market Assistance 

12/6/00 From USDA and CCCGA: Up to $20 million will be available to cranberry producers to help offset low market prices experienced during the 1999 crop year. Farmers will be notified in mid-December concerning the application process which has been simplified by coordinating with existing data held by the Agricultural Marketing Service. Growers should receive notification on payments by mid Dec. growers should receive payments between 90 - 120days after sign-up.  Rules are still being written and require OMB review.


Decas looking for new growers

12/5/00 John Decas sent a letter to Massachusetts growers soliciting additional supplies of fruit. Read letter here.


Not so secret information

12/4/00 The SEC monitors stock market trading for illegal insider trading. But Web sites such as InsiderTrader and others make it easy for the public to obtain a wealth of information about who is doing what with their personal wealth. For example, here's an account from Insider Trader on Ocean Spray CEO Robert Hawthorne's trades of stock in Select Comfort, the company he once headed and brought public. 

The shares he sold went for far less than they were worth when he left the company.  See trading record here.


The Complaint is now available in quick loading version here.

Northland news

12/2/00 Northland stock, under $1.00, could lose NASDAQ listing, WI Daily Trib.

12/1/00 "I think we're on track to fix this thing," John Swendrowski in The Milwaukee Journal Sentinel

 11/30/00 WI Daily Trib: Northland Defaults on loans Quote: Northland's situation is reflective of the entire industry's struggle, (Ocean Spray spokesman Chris) Phillips said. "This is clearly just another symptom of what we're all going through," he said. "These are tough times. Our growers are also experiencing that same toughness." Also AP article

Northland's efforts to improve financial situation, in the WDT.

Editorial

The Three Musketeers vs.
The Dirty Dozen

or Remember the Alamo *

12/1/00 Cranberry Stressline considers the law suit against Ocean Spray. Read editorial here.  

* The term The Dirty Dozen was coined after a proxy fight in February. In order to fully understand how the decision to undertake a law suit against Ocean Spray was made, I think it is helpful to look back at the circumstances surrounding the Proxy Fight prior to and at the 2000 Annual Meeting. Those who were involved at the time talked about the meeting, which was in San Antonio, as a replay of the Battle for the Alamo in 1836. Ironically, the hotel where the meeting was held was across the street from the site of that bloody battle. Perhaps my description of the forces arrayed against Ocean Spray shareholders as The Dirty Dozen could more aptly been General Antonio López de Santa Anna's Army, because indeed those who lost felt they were overwhelmed by a massive well organized force. Following their defeat there were numerous references to Alamo heroes Davey Crocket, Jim Bowie and William B. Travis on the Stressline Forum. Perhaps a more apt title for my editorial would have been "Remember the Alamo," because that was the what the Texan Army, under the legendary Sam Houston, shouted when they finally routed Santa Anna at the battle of San Jacinto six weeks later. You can read about the Proxy Fight here.


Pepsi and Quaker news: 12/1/00 NYT: Pepsi - Quaker close to agreement Quote from the Wall Street Journal: "Indeed, the success of the Tropicana deal, initially viewed skeptically because of the high price, may have emboldened PepsiCo to act now to buy Quaker. Not only has Tropicana performed well, analysts say it has given Pepsi access to Tropicana's research on "functional" beverages, a segment of drinks with supposed health attributes."

Other news: AP story from Japan

Plaintiff press release

Ocean Spray Urged To Agree To Growers’ Resolutions

Lawsuit Prompts Board To Consider Sale or Merger Resolutions

Media coverage:   

NEW:  Providence Journal | Burlington County Times | Old Colony Memorial | Boston WHDH TV 


New York Times | WBZ- CBS Boston Television | A.P. Article | Boston Herald | The Standard Times | Milwaukee Journal Sentinel | Philadelphia Inquirer | The Cape Cod Times |The Wall Street Journal and the Dow Jones Newswire also carried stories on the law suit. The A.P. story was carried in papers across the country.

11/30/00 BOSTON – In the wake of a lawsuit filed yesterday in Plymouth County Superior Court (Massachusetts) on behalf of all Ocean Spray shareholders, the company’s Board of Directors today indicated it may include two Resolutions requested by shareholders on the agenda for the company’s Annual Meeting early next year.

Ocean Spray officials have indicated in press reports surrounding the court filing and on the company’s internal web page that part of the shareholders’ lawsuit "may be moot" since the Resolutions requested for consideration last month are "already slated for discussion and vote at the Annual Meeting in January."

However, the Board has never informed the 19 shareholders who requested the Resolutions that their inclusion was approved.

"I have no reason to believe the Board is acting in good faith regarding these Resolutions. Until officially notified by the Board, I can only assume that these Resolutions will not be included, as written, on the Annual Meeting agenda."

"Only after we filed our lawsuit compelling the Board to re-examine the possible sale or merger of Ocean Spray have we begun now to hear that the Resolutions we requested over a month ago, may in fact, be listed," said former Ocean Spray Director and lawsuit plaintiff J. Garfield DeMarco. CONTINUED

Related: Letter to Plaintiff's attorneys from James S. O'Shaughnessy dated Nov. 15, 2000

The plaintiffs are represented by Edwards & Angell, LLP, principal attorneys are : Gerald P. Hendrick, Barbara L. Moore and Kathleen B. Carr.


Law suit filed against Ocean Spray

Those shareholders with the financial wherewithal to endure eight years of losses stand to benefit from the destruction of less affluent shareholders,'' the suit said. But Ocean Spray spokesman Chris Phillips denied the allegations, adding that the plaintiffs are among the cooperative's largest growers. "We believe it's absolutely not true,''  Phillips said. "We believe the board is acting to build the business back for growers large and small. There is no favoritism.''  From the Associated Press 

Northland files loss

11/29/00Northland Cranberries, reported a substantial net loss
for the fourth quarter. Read press release. | Related newspaper story



11/29/00 A law suit was filed Tuesday in Plymouth County Superior Court by A.R. DeMarco Enterprises, Harju Brothers Cranberries, and Morse Brothers Cranberries, Inc. to force the Ocean Spray Board to revisit the issue of putting Ocean Spray Cranberries up for sale. There is also a request that all of the data for which the coop paid millions of dollars to Bain Consulting, Merrill Lynch, and to Professor Ray Goldberg of Harvard to ascertain the worth of the company and provide a deep financial analysis of Ocean Spray and the beverage marketplace be made available to the shareholders of Ocean Spray. The suit itself cites a breach of fiduciary responsibilities to all shareholders of Ocean Spray. The lawsuit does not seek any monetary damages.

The language in the suit, which will mostly likely be covered in the national media starting with the New York Times (HERE) is harsh and opens for the first time to the general public the dissension between a large number of Ocean Spray growers and the Ocean Spray management, board and a number of wealthy growers.  The complaint alleges that "the actions of the Directors in refusing to pursue a sale or merger of all or a portion of the Ocean Spray business prefers the interests of the more affluent shareholders which have the financial ability to weather the financial storm. In effect, the Directors have created a privileged class of shareholders - those whose private resources are sufficient to allow them to consign a product a loss for several years. During that several year period, the remaining shareholders will be forced out of business and into bankruptcy, reducing the supply of product on the market and increasing the value of the privileged shareholders' businesses. Once the number of shareholders has decreased due to this shakeout, the privileged shareholders will be able to capture future value for themselves."

Ocean Spray was petitioned to put resolutions on the ballots for the Annual Meeting by approximately 15% of the shares. Ocean Spray's legal department insisted on making certain changes which the plaintiffs felt would weaken their proposal and the negotiations between the parties broke down. 

In a letter to Ocean Spray growers, who are the sole shareholders of the cooperative, Garfield DeMarco, Howard Morse Jr. and Lawrence C Harju, Plaintiffs, state the that they have undertaken the law suit "after deep thought, with an optimistic view of new opportunities." They go on to write "We have all had a long relationship with Ocean Spray -- some of the relationships going back generations. Change is inevitable and inexorable. The Ocean Spray of yore is no more."

They make note of the studies conducted by the consultants retained by Ocean Spray and their ultimate conclusions that the best course of action would be to sell or merge the branded business with a larger and more powerful company. The board, then twenty-fine members, voted 13 to 11 to reject the recommendations.

Since then newly selected CEO Robert Hawthorne took the helm of Ocean Spray and was welcomed with hopefulness. DeMarco, Morse and Harju ask "what has been the result? Where is the turnaround?" Noting the speeches Hawthorne and the management team have given to shareholders in the various areas of the country they suggest that if they look beyond the eloquent words they will see "years of disastrous returns to growers returns to growers; projections barely met, if at all; and a market share that continues to decline."

In a section of the Complaint entitled "The Directors' Entrenchment" the plaintiffs describe how the weighted vote for members of the board was changed to a per share vote, and how each region no longer nominates candidates for board seats to represent them as had been past practice. These changes gave much more clout to the larger growers in election the board. The complaint alleges that it was in response to the close vote for selling the company that the board was restructured to eliminate geographic representation and to eliminate many of the 11 board members who voted for a sale. Furthermore, the complaint alleges that in an effort to exert even more control on the makeup of the board, a new policy was adopted by which they would screen all nominations for the board and decide amongst themselves which ones were appropriate. Thus, the complaint asserts, the board "which is controlled by the 50 largest growers, now hand-picks its successors by virtue of its mandate that it will screen all candidates for Director nominations." "the shareholders," it is noted "have not been told how many applicants there were, who they were, what their claimed qualifications were or why those who were "screened out" were deemed unqualified. The Board of Directors has effectively rendered itself self-selecting and self-succeeding."

In another section of the complaint, "Corporate Mismanagement," the Board is blamed for allowing unwise and wasteful management decisions for the past several years. They note that financial forecasts have been inaccurate and unreliable. They also say that the Directors have entered into "expensive and unjustified employment and severance agreements with the same management team."

The most compelling part of Count 1 of the Complaint is as follows:

"The shareholders will sustain irreparable harm if they are not allowed to consider and vote at the annual meeting on whether the Directors should be directed to take affirmative steps towards a sale or merger. Moreover, the shareholders will be irreparably harmed if they are not provided with sufficient information, including expert studies and analyses commissioned by Ocean Spray, to make informed decisions regarding such resolutions. Among other things, many of the shareholders are likely to sustain irreparable damage if these issues are not considered and pursued because they will be forced out of business and/or into bankruptcy."

The law suit asks the Court to rule that Ocean Spray must put the following resolutions on the agenda for a vote at the annual meeting which is scheduled for Jan. 13-16, 2001:

1. Actions With Respect to Merger Consolidation of Corporation

That the Board of Directors of the Corporation immediately take such actions as are necessary to determine a range of appropriate values, such value range to be an amount which the corporation's shareholders might reasonably expect to receive from a publicly-trade company, for all or part of the Corporation's processed and/or fresh fruit business, and that the Board of Directors communicate such information to the shareholders of the Corporation before March 16, 2001.

2. Actions With Respect to the Handler Bargaining Cooperative

That the Board of Directors take such actions as are necessary to determine, in the event of a merger, consolidation, sale or other disposition of the Corporation's processed and/or fresh fruit business, the resulting structure, governance and financing for the remaining handler bargaining cooperative, including the terms and conditions of the growers' cooperative marketing agreement, and that the Board of Directors communicate such information to the shareholders before March 16, 2001.

The addendum to the Complaint includes letters from Jack Bell; Ron Drollett, Ed Gelsthorpe, and Tom Gelsthorpe; and David Mann; but none so poignant and powerful as the letter shared publicly for the first time from former Board member Larry Harju. Harju writes of his love for Ocean Spray, and that this feeling had blinded him "as one trapped in a cult." As a board member for 11 years, he writes "I realize hindsight is 20/20, but I was unable to think outside of the box." He writes with a candor and forthrightness about his personal circumstances which is unusual to see in cranberry growers who are generally not known for self-disclosure. (Read Larry Harju's letter here)

The press release about the law suit includes a copy of the letter sent to Ocean Spray growers from the plaintiffs. Copies of the complaint are part of the public record. It should be available on Cranberry Stressline in its entirety by mid-day on Wednesday, if not sooner. Combined, these documents represent the culmination of an exhaustive behind the scenes effort to move the powers that control Ocean Spray to reconsider selling the company without publicizing the internal problems within the company. Until now, the public only knew there was a cranberry crisis due to a surplus. The problems within the Ocean Spray "family" was a closely held secret. Now, with an article in the New York Times, and possibly other newspapers and media following suit, the genie is now out of the bottle.

The Complaint


Previous edition

Newspaper articles:

Providence
Journal:

Bitter harvest:
Squeezed by plummeting prices, over production, New England's cranberry farmers face bleak future: Email for copy

Milwaukee
Journal
Sentinel:

In the red: On the edge, cranberry growers face the harvest hoping for better days

 

Boston
Globe:

Cranberry industry chronicled on web

Email for copy

 

Boston 
Globe

Sunday Magazine cover story - Too much of a good thing page 12

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