## Facts

- PepsiCo acquired approximately 74% of Wilson Sporting Goods Co.’s outstanding shares in 1970 and placed officers on Wilson’s board, exercising control over Wilson’s affairs.
- PepsiCo pursued a Delaware short-form merger of Wilson into PepsiCo, completed in December 1972.
- Minority Wilson shareholders were offered $17.50 per share in cash; Wilson warrant holders (exercise price $20.50 through 1978) were offered $3.50 per warrant.
- Minority shareholders and warrant holders sued in a federal class action alleging unfair merger terms and false or misleading representations, asserting claims under SEC Rule 10b-5, the Securities Exchange Act of 1934, and pendent fraud theories.
- In discovery, plaintiffs sought documents prepared by or for PepsiCo’s counsel concerning merger structure, tax consequences, valuation, and fairness analyses; PepsiCo refused production, asserting irrelevance and attorney–client privilege.

## Issues

1. Whether documents analyzing the merger’s valuation, structure, and fairness were relevant and discoverable under the broad scope of Federal Rule of Civil Procedure 26.
2. Whether PepsiCo could invoke attorney–client privilege to withhold merger-related legal communications and analyses from minority shareholders and warrant holders suing in a representative posture challenging controlling-shareholder conduct.

## Decision

- The court granted plaintiffs’ motion to compel production.
- The court held the requested documents were relevant to the claims concerning fairness of consideration and alleged misrepresentations or omissions.
- The court held that, given the circumstances, attorney–client privilege did not bar production of the requested materials, and the documents were discoverable.

## Legal Principles

- Discovery relevance under Federal Rule of Civil Procedure 26 is broad; documents bearing on disputed transaction fairness, valuation, and disclosure obligations are ordinarily discoverable in securities-fraud and fraud-based merger challenges.
- In representative shareholder litigation challenging alleged misconduct by those in control, corporate attorney–client privilege may yield where equity and fiduciary-duty considerations require access to legal advice obtained for corporate purposes related to the challenged transaction.
- Where a controlling shareholder effectuates a transaction affecting minority interests and is accused of unfairness or misleading disclosures, privilege may not be used to shield merger-related corporate legal communications from shareholder discovery.

## Conclusion

The court compelled production of merger-related analyses and communications, finding them relevant and concluding that, in the context of a representative action challenging a controlling shareholder’s merger conduct, attorney–client privilege did not prevent discovery.


Valente v. PepsiCo, Inc., 68 F.R.D. 361 (D. Del. 1975)