AriZona Brand Back in Play

The long-running court battle for control of the Beverage Marketing, owners of the AriZona tea brand, left unanswered the critical question of valuation: Last week a New York state judge assessed the company at $2 billion as of October 2010.

The preliminary ruling means Domenick Vultaggio must pay John Ferolito and family members $1 billion to take full control of the jointly-owned venture. The valuation dispute has blocked the Ferolitos from selling their stake in the company for the past decade.

WTN141020_ART_ArizonaTeas_GroupThe company produces AriZona tea, a 99-cent per can goldmine that accounts for 25% of sales in the $5 billion RTD tea category.

Several suitors including Tata Global Beverages, the Coca-Cola Company and Nestlé SA hoped to acquire the company at one point but were stymied by a furious, decade-long feud between the founders. An agreement dating to the early years of the company prevents either side from selling its stake without the other’s consent.

AriZona was launched in 1992 by the two Brooklyn beer distributors who had been friends since 1971. In 1998 the 50:50 partners agree that Vultaggio would run the company’s day-to-day operations. This agreement prohibited transfer of company stock to outsiders.

In 2005 Ferolito began conversations with several beverage firms hoping to sell the business. Vultaggio as chairman, refused. Ferolito sued claiming the restrictions were unenforceable and lost. He then filed to dissolve the partnership. Vultaggio elected under state law to buy out his partner. At the time Ferolito valued his share of the company at $3.2 billion. Vultaggio valued the shares at $426 million.

WTN141020_ART_ArizonaIcedTeaLast Tuesday N.Y. State Supreme Court Judge Timothy Driscoll announced a “back of the envelope” calculation of the company’s value at the time the suit was filed. His 42-page ruling ordered both parties to return in November to determine the precise value, a process that could take months. The case already has amassed more than 1000 pages of affidavits and tens of thousands more of company financials and correspondence.

As part of the settlement, Vultaggio was ordered to pay 9% interest dating back to 2010 a sum of approximately $90 million per year.

In court, Vultaggio said that stripping the company of $1 billion owed Ferolito would financially cripple the venture, endangering 1000 jobs. Vultaggio is reportedly seeking a partner to assist in the buyout, according to his attorney, who was quoted in the Wall Street Journal.

“AriZona is gratified that the court rejected the insane, fabricated valuations that Ferolito proposed, while recognizing the true uniqueness of AriZona,” said Vultaggio attorney Louis M. Solomon. “But certain issues remain. The court said it will address the ability of AriZona to pay in subsequent proceedings,” according to a report in Newsday.

Sources: Wall Street Journal, Newsday