The saga of Le-Nature's Inc. took another strange twist Aug. 30 when a Pittsburgh bankruptcy judge threw out a $20 million high bid by grocery chain Giant Eagle Inc. for the beverage maker's factory in Latrobe, Pa., and handed it instead to Cadbury Schweppes Bottling Group Inc. - which bid $19 million, but now says it does not want the plant.
A published report said Cadbury Schweppes could end up selling the plant - including Krones PET blow molding machines and Husky preform injection molding machines - to Giant Eagle anyway.
Pittsburgh-based Giant Eagle and Cadbury Schweppes were bidding against each other for the blow molding and beverage plant, the former headquarters of Le-Nature's, a now-defunct maker of flavored water, fruit juices and teas that was forced into bankruptcy Nov. 1. The case already has lots of tabloid-worthy allegations of massive fraud, forgery and document shredding involving founder Gregory Podlucky.
The U.S. Attorney's office in Pittsburgh and the U.S. Postal Inspection Service are inspecting Podlucky and the company. According to court documents, 2005 financial statements hugely inflated Le-Nature's numbers, showing $275 million in annual sales, when an investigation showed the real sales were as low as $32 million.
Selling the factory in Latrobe will help pay creditors in Le-Nature's Chapter 11 bankruptcy case. Le-Nature's piled up debts of more than $700 million, court documents showed.
Judge M. Bruce McCullough held an auction for the factory Aug. 9 in U.S. Bankruptcy Court in Pittsburgh. Giant Eagle won, with its bid of $20 million. That beat the $19 million bid from Cadbury Schweppes, the maker Dr. Pepper, 7 Up, A&W Root Beer and other soft drinks.
Giant Eagle said it would use the well-equipped Latrobe plant to make its own brands of water and other beverages. The plant would reopen. It seemed pretty cut and dry.
And then, like a Mentos dropped into a bottle of soda pop, Le-Nature's exploded again.
The fizzy blowout came from Chapter 11 trustee R. Todd Neilson. A local newspaper reporter said he had received an anonymous tip that Giant Eagle threatened in a letter to stop carrying 15 soft drink brands from Cadbury, including Schweppes brand, Sunkist, A&W, Vernor's, Squirt and Cotton Club.
Neilson valued the lost business at about $7 million in sales, out of about $42 million of total Cadbury business with the grocer. The trustee alleges Giant Eagle was punishing the soda company because Cadbury was competing with Giant Eagle in the bidding process.
"It appears this letter was sent as to intimidate Cadbury and chill its participation in the bidding process," Neilson wrote.
The letter said Ray Smaltz, senior vice president of grocery merchandising for Giant Eagle, was "not at liberty to disclose" the reasons for the move.
Neilson filed a motion Aug. 29 asking McCullough to revoke the sale to Giant Eagle and authorize him to sell the Latrobe plant to Cadbury. At a hearing the next day, the judge did just that.
Neilson said in his motion that: "Curiously, after the auction, Giant Eagle had a change of heart and advised Cadbury that it would not discontinue the 15 listed brands, provided that certain service-level issues were addressed."
Giant Eagle officials could not be reached for comment. Cadbury spokesman Charles Alfaro said the beverage maker would have no comment.
But in court filings documents, both Giant Eagle and Cadbury Schweppes deny any improper activity. Giant Eagle said the letter "had no impact whatsoever" on Cadbury's decision not to raise its bid at the Aug. 9 auction. Cadbury Schweppes supports that position, saying Cadbury officials already had decided, independently and before Giant Eagle sent the letter, that it no longer wanted to own the factory.
"The initial bid was made through inadvertence or mistake" to meet the deadline to participate in the auction, "and not because Cadbury was at that time interested in purchasing the property," Cadbury said in its filing supporting Giant Eagle as a good-faith buyer.
The Pittsburgh Post-Gazette reported that Cadbury's lawyer, Gary Nelson, told the judge the company will sell the plant if the court orders it to go ahead with the purchase. He said Giant Eagle is a potential buyer, the newspaper reported.