In this M&A legal blog, learn about a recent case where a buyer was ordered to pay $75 million in damages to a seller for breaching representations and warranties during an insurance company acquisition. Gain insights into the lawsuit and its implications.
M&A Stories
July 27, 2021
Introduction:
In a recent M&A (mergers and acquisitions) case, a buyer promised a seller of an insurance company that they had no issues with state insurance regulators. However, the buyer was actually facing regulatory problems, leading to the deal falling through.
The Deal:
The acquisition involved a Nebraska insurance company, and the buyer group owned various insurance and non-insurance companies. To complete the $585 million acquisition, approval from the Nebraska Department of Insurance was required.
The seller was aware of the buyer’s regulatory problems with some of its other insurance companies’ financial relationships but decided to proceed with the deal because the buyer provided assurances in the agreement that these problems would not hinder the acquisition.
Unfortunately, the buyer’s undisclosed regulatory issues caused complications with the Nebraska Department of Insurance, resulting in the deal’s termination as the buyer couldn’t close the deal within the specified closing date mentioned in the stock purchase agreement.
The Lawsuit:
Following the deal’s collapse, the buyer demanded the release of $29.25 million held in escrow. The seller refused, leading to a legal dispute that ended up in a Manhattan state court.
The case centered around whether the buyer breached the representations and warranties stated in the stock purchase agreement, which assured that their regulatory problems would not affect the deal. The court ruled in favor of the seller, finding that the buyer had indeed breached these representations and warranties. As a result, the court awarded the seller $75 million in damages and interest.
This case is referred to as GBIG Holdings, Inc. v. Resolution Life LP, Docket No. 650575/2019, Index No. 653258/2019, Supreme Court, New York County, (May 12, 2021).
Comment:
In this particular case, it was immaterial that the seller was aware of the buyer’s problems. The representations and warranties made by the buyer were designed to transfer the risk associated with the deal to the buyer, irrespective of what the seller knew about the buyer’s issues.
By John McCauley: I help people manage M&A legal risks.
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
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