Explore the legal battle faced by a Mississippi beer wholesaler when seeking consent to sell its Anheuser-Busch distributorship. Gain valuable insights for M&A professionals.
June 7, 2019
M&A Stories
Introduction:
Exclusive distributor relationships can be the lifeblood of a distributor’s business, but they often favor the larger manufacturer. This article delves into a case where a Mississippi beer wholesaler faced a challenge when seeking consent to sell its Anheuser-Busch distributorship. The legal battle that ensued offers valuable insights for entrepreneurs, business owners, and professionals involved in M&A transactions.
The Background:
The distributor had a long-standing exclusive contract with Anheuser-Busch, making it a key player in the Mississippi Gulf Coast beer market. When the distributor decided to sell its distributorship to a nearby business, it sought Anheuser-Busch’s consent as required by its contract.
An Unexpected Refusal:
Anheuser-Busch declined to consent, invoking its contractual right to designate a different local distributor to acquire the business. This decision had significant financial consequences for the original distributor, resulting in a claimed loss of $3.1 million.
Legal Action:
The distributor alleged that Anheuser-Busch’s refusal violated Mississippi law. Under this law, a manufacturer cannot unreasonably withhold consent if the proposed buyer meets reasonable qualifications and standards. Anheuser-Busch could only refuse consent in good faith and for valid reasons related to the buyer’s qualifications.
Court’s Ruling:
Initially, a Mississippi trial court dismissed the distributor’s claim, but the state Supreme Court overturned this decision on appeal. The Supreme Court held that the distributor had presented sufficient evidence to suggest that Anheuser-Busch’s refusal may have violated Mississippi’s consent law.
Key Takeaways:
This case underscores the importance of understanding and navigating required third-party consents in M&A deals. These consents can come from various sources, including franchisors, suppliers, licensors, and governmental entities. It’s crucial to assess whether these consents can be withheld unreasonably, both in contractual terms and legal statutes.
In conclusion, this case serves as a reminder to entrepreneurs, business owners, CFOs, lawyers, and other professionals involved in M&A transactions that the refusal of a necessary third-party consent can pose substantial risks. Understanding the legal framework surrounding such consents is essential to mitigate potential obstacles and ensure successful deal closures.
Case Reference:
Rex Distributing Company, Inc. v. Anheuser-Busch, LLC., No. 2018-IA-00037-SCT, Consolidated With No. 2018-IA-00038-SCT, Supreme Court of Mississippi, (May 23, 2019)
By John McCauley: I help companies and their lawyers minimize legal risk associated with small U.S. business mergers and acquisitions (transaction value less than $50 million).
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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