Deal Struck for One Arizona Iced Tea Co-Founder To Buy Out the Other -- Update

By Mike Esterl 

The feuding co-founders of Arizona Beverage Corp. have reached a preliminary settlement that would allow one to buy out the other, potentially ending a yearslong valuation dispute over the iced tea maker.

The agreement allowing Domenick Vultaggio to buy out John Ferolito's 50% stake in the privately held company for an undisclosed amount still requires final court approval, which could come as soon as next week.

Nassau County, N.Y. Supreme Court Judge Timothy Driscoll has been weighing how much Mr. Vultaggio must pay Mr. Ferolito to take full control. Judge Driscoll estimated last October that the value of the maker of Arizona iced tea "approached" $2 billion as of October 2010, when the legal dispute began.

Arizona Beverage had an estimated 23.7% share of the $5.32 billion ready-to-drink tea market in the U.S. last year, according to market researcher Euromonitor. That put it behind only Unilever PLC and PepsiCo Inc., whose tea joint venture is headed by the Lipton brand.

Attorneys representing Messrs. Vultaggio and Ferolito declined to give the price of the proposed transaction, citing a confidentiality agreement.

Mr. Ferolito, who stopped being involved in day-to-day operations several years ago, had argued earlier that the company was worth $3 billion to $4 billion. Mr. Vultaggio had argued its value was closer to $500 million.

Until now, Messrs. Vultaggio and Ferolito and their families each have controlled 50% of the company. Mr. Ferolito began exploring selling his stake roughly a decade ago, but was blocked by Mr. Vultaggio.

The estranged Brooklyn friends became business partners in 1971, delivering beer in New York City with a Volkswagen bus. They launched Arizona and its Southwestern-inspired label motif in 1992, eventually taking the iced tea brand national.

Nicholas Gravante, an attorney for Mr. Ferolito, said Tuesday the proposed settlement is "in the best interest of all parties." Louis Solomon, an attorney for Mr. Vultaggio, said his client is also hopeful the settlement will be approved.

A final settlement could open the door to Mr. Vultaggio selling a stake in the company to another investor. Coca-Cola Co., Nestle SA and Tata Global Beverages Ltd. expressed interest in buying some or all of Arizona before the co-founders took their dispute to court, according to court documents.

Mr. Vultaggio has no plans to sell, said Mr. Solomon, his attorney.

As part of the proposed settlement, Arizona also would cover Mr. Ferolito's legal fees.

Write to Mike Esterl at [e-mail]

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