Explore the implications of a recent M&A case in Delaware (Post Holdings, Inc. v. NPE Seller Rep LLC), emphasizing the importance of honoring post-closing payments despite alleged breaches by the seller. Gain insights into contractual obligations, indemnification claims, and the significance of careful consideration in stock purchase agreements.
M&A Stories
November 15, 2018
In a recent M&A case (Post Holdings, Inc. v. NPE Seller Rep LLC), the Delaware Court emphasized the importance of honoring post-closing payments even in the face of alleged breaches by the seller.
On August 31, 2016, a stock purchase agreement was inked between the buyer and sellers, with the buyer acquiring all shares of the target company for $93.5 million. Post-closing, the buyer uncovered misrepresentations made by the sellers during due diligence and in the agreement, particularly related to immigration laws, production equipment condition, and pasteurizer production capacity.
The agreement outlined seller indemnification for buyer’s losses arising from inaccuracies or breaches in the representations. A $7.5 million escrow fund was established to cover indemnification obligations. Additionally, the buyer was obligated to remit tax refunds and insurance proceeds to the sellers for the pre-closing period.
After the transaction closed, the buyer discovered the alleged misrepresentations, filing a claim notice seeking indemnification from the escrow fund. Simultaneously, the sellers demanded the buyer remit approximately $1 million in tax refunds and insurance proceeds. Disputes arose, leading to a legal battle.
Buyer, refusing to remit the $1 million, claimed sellers’ material breaches excused them from payment. The court ruled against the buyer, stating that even with valid claims for indemnification, the buyer couldn’t withhold payments to sellers. The court highlighted that the buyer couldn’t benefit from indemnification while avoiding its obligation to pay sellers, as outlined in the agreement.
In essence, the court emphasized the buyer’s duty to fulfill contractual payment obligations, even if valid indemnification claims existed. The case underscores the need for careful consideration of offset provisions in stock purchase agreements to address such situations.
Case Reference:
For a more in-depth understanding, refer to the case Post Holdings, Inc. v. NPE Seller Rep LLC, C.A. No. 2017-0772-AGB, Court of Chancery of Delaware (Date Decided: October 29, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
Legal Disclaimer
The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.
Recent Comments