Secret side deal involving Pregis’ acquisition of Rex Performance Products (RPP) prompts lawsuit

On Feb. 27, Pregis Performance Products LLC (Deerfield, IL) announced that it had acquired Rex Performance Products (RPP; Marysville, MI) for an undisclosed amount. The acquisition would enable Pregis to build on its position as one of the largest foam producers in North America. RPP’s specialty is high-quality laminated polyethyelene (PE) foam technology. Both companies manufacture PE foam used in product packaging.

The acquisition adds another 100,000-square-feet of manufacturing space, as well as 150,000-square-feet of warehouse space, to the Pregis network. RPP has 85 employees. “The acquisition strengthens Pregis’ position as a leading North American producer of engineered foam,” said Kevin Baudhuin, President and CEO of Pregis. “We will now have five engineered foam manufacturing locations and a vast warehousing network across the continent to serve fabricators. The combined organization will offer customers an expanded portfolio of protective packaging solutions.”

A twist to this deal came in a release on March 6, announcing that a Texas court had halted a secret $1.5 million bonus to be paid by Pregis to James Donald Tate, President and CEO of RPP, who was ordered not to receive payment. The temporary restraining order was issued on Feb. 26 in Tarrant County’s 141st District Court.

The lawsuit, which was filed on behalf of Rex Performance by Darrell W. Cook of Dallas’ Darrell W. Cook & Associates, alleges that Tate “negotiated a secret side deal to drive down the purchase price of his own company in exchange for a so-called ‘super bonus’ that would be paid by Pregis.”

The release said that Tate was entrusted with “sole control to negotiate the sale of RPP’s assets” when the company was approached last December by the Stamford, CT–based private equity firm Olympus Partners, which owns Pregis. As part of the negotiations, Tate met in January with Olympus partner Manu Bettegowda. Following the meeting, Tate reported that Olympus was offering $3 million less than what RPP requested. After Tate’s lobbying of fellow RPP equity members to accept the lower offer, the company agreed to the sale.

However, according to the lawsuit, Tate had secretly negotiated a $1.5 million bonus for himself and others in exchange for driving down the purchase price.

The alleged scheme came to light when RPP discovered a series of exchanges on Tate’s work e-mail while conducting due diligence to close the transaction. In the e-mails, Tate and representatives from Olympus reportedly openly discussed their plans and the need to keep the side deal confidential from others at RPP.

The lawsuit filed against Tate, Bettegowda, Pregis and Olympus seeks more than $1 million in damages based on claims for breach of common law fiduciary duty, conspiracy and exemplary damages, among others. A March 9 hearing will determine how the case will proceed.

You can read Pregis' response to this report posted March 13.