AriZona Deal in Jeopardy?

John Ferolito might have sold a stake in AriZona Iced Tea to a private equity firm, but his partner, AriZona front man Don Vultaggio isn’t letting him get away without a fight.

The longtime partners are currently embroiled in a civil suit in the Supreme Court of the State of New York, with Ferolito complaining that he is contractually banned from selling his stake to anyone outside of the company or his immediate family.

The case is especially important given the recently-released news that Ferolito has sold an as-yet-undisclosed stake in AriZona to Patriarch Partners, LLC, a deep-pocketed investment group that trumpeted the sale in late August.

While Ferolito was busy announcing that an investment from Patriarch would be instrumental in moving the company forward, he was also busy with a lawsuit filed a few months earlier that alleges that the AriZona partnership was set up in a way that would prevent him from making any kind of sale at all. Vultaggio, meanwhile, was busy filing motions to prevent the suit from going forward.

In a statement released to BevNET today, AriZona spokeswoman Leigh Parrinello made it clear that Vultaggio was repudiating the sale.

“Recently, public announcements have been made regarding an attempted involvement by an outside third party into the AriZona business that was not sanctioned by Mr. Vultaggio,” read the statement. “Mr. Vultaggio, who governs all aspects of the Companies’ decision making by virtue of unanimous internal agreement, will continue to shepherd the company on its path toward increasing market share and he will leave the unauthorized attempt at intrusion in the hands of the court.”
According to Parrinello, Vultaggio had spent the entire previous day in court.

While it is not immediately clear whether or not the announced deal is in jeopardy, the suit also revealed that, behind the scenes, the AriZona partnership has been on unsteady ground for several years. Ferolito alleges that his partner has quashed deals with both Tata, the Indian tea conglomerate, and with the Coca-Cola Co.

Calling the dispute one of “exceptional consequence,” Ferolito’s lawyer wrote that Tata had offered even more than a previously-reported $2 billion for AriZona, and that when Vultaggio nixed the sale he also prevented Ferolito from selling out his own stake via a clause in the pair’s partnership agreement.

That clause – a “Transfer Restriction” set up by the company’s accountant restricting the ability of the partners to make a deal outside either the company or their immediate families – has essentially left Ferolito powerless to sell to anyone except Vultaggio, according to the complaint in the suit.