## Facts

- Quaker Oats agreed in 1994 to acquire Snapple through a tender offer followed by a merger, offering $14 cash per share.
- Snapple shareholders who believed $14 was inadequate could refuse to tender and seek appraisal under Delaware law.
- Thomas H. Lee was a controlling Snapple shareholder (at least 35% by plaintiffs’ estimate) and agreed to tender; he also granted Quaker an option to purchase his shares even if the tender offer failed.
- After the offer closed, approximately 96.5% of Snapple shares were tendered and Quaker completed a short-form merger.
- Before the tender offer was publicly announced, Snapple and a Quaker subsidiary entered into a new distribution agreement with Select Beverages, an entity whose majority ownership was held by Lee affiliates (with Snapple holding 20%).
- The agreement gave Select exclusive distribution rights for certain Snapple and Gatorade products in specified Midwestern territories and was described as commencing upon consummation of the tender offer, as “perpetual,” and terminable for failure to meet performance tests.
- Two investors (Lerro and Duty) alleged the distribution agreement functioned as “extra consideration” for Lee’s shares, because anticipated profits would benefit Lee-related interests beyond the $14 per-share price offered to other shareholders.

## Issues

1. Whether a pre-offer distribution agreement benefiting a controlling shareholder’s affiliated entity constitutes “consideration” paid to that shareholder “during” the tender offer under § 14(d)(7) of the Williams Act and SEC Rule 14d-10(a)(2).
2. Whether the best-price rule requires equal treatment for economically valuable side arrangements executed in proximity to, but before, the formal commencement of a tender offer.

## Decision

- The Seventh Circuit affirmed dismissal of the complaints on the merits.
- Even assuming the distribution agreement conferred value connected to Lee’s decision to tender, it was not consideration paid “during” the tender offer because it was entered into before the offer commenced.
- Because the statutory and regulatory text limits equalization to the tender-offer period, the alleged side arrangement did not trigger any obligation to provide equivalent value to other tendering shareholders.

## Legal Principles

- Section 14(d)(7) and Rule 14d-10(a)(2) require that tendering shareholders receive the highest consideration paid to any other shareholder “during” the tender offer.
- The best-price requirement does not retroactively equalize transactions or arrangements entered into before the tender offer formally begins.
- A plaintiff cannot state a best-price claim solely by alleging that a pre-offer business agreement provided an economic benefit to a large shareholder connected to the merger; the timing limitation is dispositive when the alleged consideration was not paid during the offer.

## Conclusion

The court held that the Williams Act’s best-price rule is confined to consideration paid during the tender-offer window and does not require equalization of pre-offer agreements, even if such agreements plausibly provide additional economic value to a controlling shareholder.


Lerro v. Quaker Oats Co., 84 F.3d 239 (7th Cir. 1996)