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Nestlé lawsuit claims lies and deceit

23-Jun-2005

Nestlé is being sued in Puerto Rico by a local ice cream firm it had agreed to buy, accused of deceit, fraud and breach of a competition authority ruling, reports Chris Mercer.

Payco Foods "argues that Nestlé acted in a deceitful and fraudulent way as part of a scheme to lower the value of Payco's shares and monopolise the market for ice cream on the island".

The firm is seeking between $50m and $150m in damages and now wants the courts to force Nestlé to sell its Payco shares and annul a takeover deal. Nestlé bought half of Payco's shares in June 2003 with an agreement to buy the rest after two years.

The lawsuit claims Nestlé broke a condition of the deal, set by Puerto Rican competition authorities, that if it bought the distribution rights to Dreyer's Grand Ice Cream in the US, it would not take away the distribution rights of Dreyers' products from Puerto Rico's third biggest distributor, Sterling Merchandising.

Payco says Nestlé breached this deal when it launched talks to buy Sterling's distribution of Edy's ice cream brand without notifying competition authorities.

A subsequent deal, it is claimed, would have given Nestlé 90 per cent of the island's ice cream market with the potential for this to reach 100 per cent - violating Puerto Rico's Monopoly Act.

Payco, in a two-pronged assault, also said that it lost millions of dollars because Nestlé withheld information and knowingly lied to persuade the local firm to buy a substandard factory.

"Nestlé's objective was to lower our value so they could acquire us at a cheaper price and control the market," said Thomas Ward, the local businessman who bought Payco in 1993. He added that Payco's shares had plummeted.

Ward turned Payco from a bankrupt disaster into Puerto Rico's leading ice cream distributor with net sales of $31m in 2002, and rights to international brands such as Haagen-Daazs and Snickers.

The lawsuit battle will take place in the US District Court for Puerto Rico.