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Teavana (TEA) Responds to Short Seller Allegations; Shares Retreat

 November 20, 2012 02:23 PM

(By Balachander) Teavana Holdings Inc. (NYSE: TEA), which agreed to be acquired by Starbucks Corp. (NASDAQ: SBUX), has responded to allegations made by certain short sellers.

Independent laboratory tests showed that Teavana's teas contain pesticides in amounts that exceed US and EU regulatory limits, short seller Glaucus Research Group wrote in a note to investors. Glaucus sent thirteen of Teavana's most popular teas to an accredited lab in Germany for testing.

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"In our opinion, not only are lawsuits from the Federal Trade Commission and class-action attorneys inevitable, but once Starbucks learns that they have been deceived into paying a premium price for a tarnished consumer brand, they will walk away from the acquisition," Glaucus said.

Glaucus believes that like Teavana's customers, Starbucks has been deceived by Teavana's misrepresentations regarding the quality of its teas.

Meanwhile, the Atlanta, Georgia-based retailer of loose-leaf teas said its teas undergo rigorous third-party testing on each batch of teas based on international food safety standards including European Union regulations, which are widely considered to be the most stringent in the world.

Consistent with that, the company said it has established internal procedures and comprehensive third party testing to ensure all tea is safe and within those guidelines.

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Starbucks had last week agreed to buy Teavana for about $620 million or $15.50 per share in cash.

"Teavana refutes the report's conclusions," the company said. "The group that published the report is a short-seller and may benefit financially from the allegations in the report."

TEA stock, which has been trading in the 52-week range of $9.75 to $26.03, retreated 5.06 percent to trade at $14.65 on Tuesday.

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