Gad Propper sues Nestle for NIS 39m

Gad Propper / Photo: Eyal Izhar, Globes

Propper is demanding that Nestle pay him the same price for his Osem shares received by the public shareholders who sold their shares to Nestle four years later.

Israeli businessman and former Osem co-owner Gad Propper is instituting proceedings against the Nestle group, which bought his shares in the family-owned company in 2012. Propper is demanding that Nestle pay him the same price for his shares received by the public shareholders who sold their shares to Nestle four years later. In his statement of claim filed at the Tel Aviv District Court through Gad-Pro, in which Propper's wife and children also have holdings, he states that the proceeds that he received from the sale of his shares to Nestle were NIS 39 million too low.

The veteran industrialist claims that he is entitled to this amount because in 2016, four years after Nestle bought his shares, it also bought all of the Osem shares held by the public at a 30% premium, while it paid Propper only a 12.5-19% premium on his shares. Propper says that the contract he signed with Nestle several years before this sale gives him the right to the difference between the price paid by Nestle to the public and the price at which Propper sold his shares.

Premium also on a future deal

According to the statement of claim, Gad Propper and his brother, Dan Propper, signed an agreement with Nestle in 2004 arranging the future sale of the Proppers' shares in Osem to Nestle. The agreement states that the price for the sale would be determined by average market price of Osem's share in the 30 days following the brothers' announcement that they planned to sell their remaining shares, plus a 12.5% premium. The agreement also states that the brothers would have a put option for part of their remaining holdings in Osem shares.

Gad Propper exercised this option in 2012, selling his entire 5% remaining stake in Osem to Nestle for NIS 372 million at a price reflecting a 12.5-19% premium. A year later Dan Propper sold his remaining 6.1% stake in Osem to Nestle for NIS 504 million. Dan Propper is not a party in the legal proceedings now instituted by his brother.

The dispute between Nestle and Gad Propper concerns the price that Nestle paid when the brother exercised their option. Gad Propper claims that the agreement sets forth three options for the price of the Osem shares bought by Nestle, and that the brothers were entitled to the highest of the three. The third option in the agreement, which is relevant to the lawsuit, states that if Nestle buys additional Osem shares from third parties up until 2026, the share price will be the average market price during the 30 days following the brothers' announcement that they planned to sell their remaining shares, plus the premium paid by Nestle to the third party that sold its shares to Nestle.

Propper says that the parties meant that if any third party whatsoever receives a higher premium on the market price before July 2026, the brothers should get the same premium, even if Nestle purchases the third party's shares in a future deal, and even if this happens only after the brother have already sold all of their shares to Nestle. Propper further alleges that Nestle made the same provision in other deals before signing the agreement with the Proppers.

The statement of claim asserts that the Proppers were not represented by lawyers in the agreement setting forth the options, and that Nestle's lawyers were well aware of the clause's significance, and also made many changes in it "that merely highlighted the parties' intentions concerning the brothers' right to benefit from a higher premium paid in any deal with a third party up until July 2026."

Public shareholders received a 30% premium

Propper says that when the time came for Nestle to fulfill its obligations, it failed to do so. He contends that in 2016, when Osem was merged into Nestle and became a private company fully owned by the Swiss company, Nestle paid members of the public holding shares in Osem a price reflecting a 30% premium on the average share price in the 30 days preceding the purchase, while it paid the Proppers only a 12.5-19% premium. The statement of claim argues, "The share purchase agreement and its clear meaning require Nestle to pay the difference between the proceeds paid to Gad Propper in the sale of his shares in Osem and the proceeds paid to him with the addition of the premium paid to the public."

In the statement of claim, Propper says that he demanded that Nestle pay the difference between the premium paid to members of the public holding shares in Osem and the premium paid to him, but was rebuffed. Propper mentions in the statement of claim that in its response to his queries, Nestle stated that he could not file a lawsuit because in 2012, when he sold his shares, he signed a waiver enjoining him from suing Nestle.

Propper asserts, "It is clear that this allegation is groundless, because the waiver between Propper and Nestle did not refer to, and could not have referred to, Propper's rights created by the agreement in 2016," meaning after Nestle completed the purchase of all of the Osem shares held by the public at a 30% premium.

Nestle's letter: The interpretation is wrong

A letter sent to Propper by Nestle, attached to Propper's statement of claim, shows that Nestle believes that a waiver exists enjoining Propper from filing his claim. Nestle also rejects the substance of Propper's allegations.

In its letter, Nestle argues that Propper's demand is based on a mistaken interpretation of the agreement. For example, Nestle states that the option under which Propper elected to sell his shares cannot be interpreted as designed to provide him with a safety net or golden parachute in the form of the highest price among the three alternatives listed in the agreement. Nestle says that such an interpretation is groundless and lacks any commercial logic.

In its letter, Nestle further states, "It appears that Propper is trying to make unfit use of the class action filed against Nestle (concerning the purchase of the public's shares by Nestle, M. B.) under the assumption that Nestle will prefer paying him money to which he is not entitled in order to avoid being entangled in another proceeding. This assumption by Propper is wrong."

Gad Propper is being represented by Adv. Reuven Behar and Adv. Tali Michlin from the Fischer Behar Chen Well Orion & Co. law firm. Nestle is being represented by Adv. Aaron Michaeli and Adv. Yehuda Rosenthal of the Goldfarb Seligman law firm.

It is believed that Dan Propper will not join his brother's lawsuit against Nestle

The connection between local food company Osem and Swiss food giant Nestle began in 1996, when the two companies signed a cooperation agreement in which Nestle's products were imported to Israel through Osem.

Nestle acquired 10% of Osem's shares a year later. The Swiss company continued gradually buying shares in Osem for 20 years, acquiring full control in 2016, delisting Osem from the Tel Aviv Stock Exchange and buying Osem shares held by the public.

In the course of this gradual takeover, Gad Propper sold his remaining 5% stake in Osem to Nestle in 2012 for NIS 372 million, followed a year later by Dan Propper's sale of his 6.1% for NIS 504 million.

Although the two brothers sold their shares under the same option clause set forth in the agreement with Nestle, Dan Propper, currently Osem's chairman, is not a party to the proceeding against Nestle instituted by Gad Propper early this week, and as far as is known, does not intend to file suit or any such action later.

Osem held its IPO on the Tel Aviv Stock Exchange (TASE) in 1992 at a NIS 178 million valuation, becoming one of the most prominent and important shares on it. This period ended in April 2016, when it became a private company and was delisted from the TASE after Nestle acquired full ownership of Osem. Osem's market cap at the time was over NIS 9 billion, making it one of the major shares on the TASE.

The Propper family was among the founders of Osem. Gad and Dan Propper's father was one of the founders of a small noodles factory, which later combined with two other factories in a company that eventually became Osem. The main advocate of Nestle's involvement in Osem was always Dan Propper, who was also Osem's CEO during most of the period relevant to the consolidation of Nestle's role in Osem.

At that time, Dan Propper, who was also previously president of the Manufacturers Association of Israel, was identified with Osem and led its growth by adopting a strategy of mergers and acquisitions, including the Sabra and Tivall deals. Gad Propper managed Osem's international activity, which was small in comparison with its activity in Israel.

Dan Propper was to have finished his term as chairman of Osem last March, but as far as is known, several months ago his term was extended by another year at Nestle's request.

Published by Globes, Israel business news - - on August 21, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Gad Propper / Photo: Eyal Izhar, Globes
Gad Propper / Photo: Eyal Izhar, Globes
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018