M&A Buyer’s Assignment Woes: Lessons from a Texas Court Decision

Share

Delve into the intricacies of M&A transactions with our latest blog post, ‘M&A Buyer’s Assignment Woes: Lessons from a Texas Court Decision.’ Unravel the consequences of a buyer’s assignment misstep in the oil and gas industry, as we explore the legal intricacies, pitfalls, and the delicate balance required in M&A negotiations. Learn from real-world cases, such as the one highlighted in Pacific Energy & Mining Company v. Fidelity Exploration & Production Company, Inc., as we dissect the importance of meticulous attention to assignment terms. Navigate the complexities of mergers and acquisitions with insights that go beyond the legal jargon, providing a cautionary tale for industry professionals and enthusiasts alike.

M&A Stories

August 1, 2018

In the intricate world of mergers and acquisitions, a recent Texas court decision sheds light on the consequences of a buyer’s assignment gone awry. The case involves an oil and gas operator selling assets in Utah for $11.5 million, with a twist that underscores the importance of careful negotiations and clear agreements.

Back in August 2015, the seller and the initial buyer (lacking the necessary financing) struck a deal. Enter Don, the buyer’s assignee, who agreed to step in and acquire the assets, while the original buyer retained operational responsibilities with a 30% net profits interest. All seemed well as the seller consented to this arrangement, provided the original buyer remained liable for the purchase price.

Fast forward to October 4, 2015, after the buyer completed its due diligence. The buyer then tasked its assignee with finalizing the net profits operating agreement and concluding the remaining due diligence. However, the deal hit a roadblock – the assignee failed to obtain all requested due diligence information, leading the seller to terminate the Asset Purchase Agreement (APA) on November 9, 2015.

In the aftermath, the buyer took legal action against both the seller and the assignee on February 12, 2016. Allegations of the seller breaching the APA and a quest for a declaration affirming entitlement to performance ensued. The seller countered, arguing that the buyer, having assigned all rights in the APA, lacked grounds for a breach claim.

The buyer, however, contended that the assignment was partial, emphasizing its retention of certain obligations, including indemnity under the APA. The Texas appellate court, however, sided with the seller. Unqualified assignment of the buyer’s rights in the APA, it ruled, result in the transfer of the buyer’s entire interest, stripping the buyer of the right to enforce the APA.

Crucially, the court highlighted that the APA explicitly stated the buyer’s assignment did not absolve them of APA obligations. Retaining these obligations did not grant the buyer the right to legally enforce the APA against the seller.

This case underscores the delicate balance in M&A transactions, especially when financing is involved. While the buyer sought external funding, it inadvertently ceded control of the deal, emphasizing the impact of external factors beyond the buyer and seller’s control.

For those navigating the complex terrain of M&A, this Texas court decision serves as a cautionary tale, urging meticulous attention to assignment terms and their potential implications.

Case Reference:

Pacific Energy & Mining Company v. Fidelity Exploration & Production Company, Inc, No. 01-17-00594-CV, Court of Appeals of Texas, First District, Houston, (Opinion issued July 24, 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

 

Posted in Assignment Tagged with: , , , , , , , , , , , , , , , , , , , ,

Recent Comments

Categories