In a battle between two Pharma giants, a Delaware state court held that the seller retained liability for potentially billions of dollars for pre-closing sales of talc products.
M&A Stories
April 24, 2023
Introduction
A buyer of a business can select what liabilities of the business to assume in an asset acquisition.
The deal
In 2014 the buyer purchased the assets of the seller’s consumer care business for $14.2 billion. The deal included the seller’s talc powder product lines. The seller agreed in the asset purchase agreement to be responsible for liabilities connected with pre-closing sale of its talc powder products.
The lawsuit
After the closing the seller argued that it was not responsible for defense costs and liability for talc powder claims after the 7th anniversary of the closing. It sued the buyer to enforce its position and cited a provision in the purchase agreement which said that buyer’s right to seek indemnification from the seller for seller’s breach of its representations and warranties expired on the 7th anniversary of the closing.
The court said that this seven year survival provision had nothing to do with seller’s promise to retain responsibility for the talc powder claims. The seven year survival provision applied solely to claims by the buyer for indemnification for breach by seller of its representations and warranties. The seller’s promise to retain the talc powder liabilities was not a representation or warranty.
The court dismissed the seller’s lawsuit.
See Merck & Co., Inc. v. Bayer AG, C.A. No. 2021-0838-NAC, Court of Chancery of Delaware (Submitted: December 19, 2022. Decided: April 3, 2023.)
Comment
The seller said it will appeal. Good luck because the seller argument is unconvincing.
There is nothing that the buyer could have done to prevent this lawsuit. Hopefully, there was a provision in the asset purchase agreement that will permit the buyer to recover its legal fees and costs from the seller as the prevailing party, because it was the prevailing party in the lawsuit.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
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