Explore the intricacies of asset acquisitions in the latest M&A dispute involving Rite Aid’s pharmacy benefit management business. This blog delves into the legal debate over assumed liabilities, highlighting a $200 million dispute between the buyer and seller over Walgreens and CVS trade payables. Discover the nuances of asset purchase agreements and the critical importance of precise liability definitions. Gain valuable insights from the bankruptcy court’s ruling and learn key lessons for future asset buyers.
M&A Stories
July 31, 2024
In asset acquisitions, buyers typically only assume the liabilities specified in the asset purchase agreement. However, disputes often arise post-closing about which liabilities were assumed.
In this case, the buyer acquired Rite Aid’s pharmacy benefit management (PBM) business for $575 million. The agreement specified that the buyer would assume the PBM’s non-delinquent trade payables and current liabilities.
Following the closing, the buyer refused to pay $200 million owed to Walgreens and CVS, arguing that these were delinquent trade payables, which they hadn’t agreed to assume. The seller acknowledged the delinquency but contended that the buyer also agreed to take on the PBM’s current liabilities, which included these payables.
The seller sought a court order compelling the buyer to pay the outstanding amounts. The bankruptcy court sided with the seller, ruling that the asset purchase agreement’s language clearly included these liabilities.
BDO had performed the buyer’s due diligence, and the buyer knew that the PMB’s working capital account was about negative $200 million. Nevertheless, did the buyer consider how the negative working capital account would be treated in the purchase agreement’s assumed liability definition. In retrospect, the buyer could have explicitly excluded delinquent trade payables from the assumed liabilities in the agreement.
The key takeaway for asset buyers is to carefully define assumed liabilities in the purchase agreement.
Case Reference: In Re Rite Aid Corp, Case No. 23-18993 (MBK), United States Bankruptcy Court, D. New Jersey, (June 25, 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connectingwith business owners management, as well as professionals who share an interest in the complexities of M&A law.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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