Explore the intricacies of M&A asset acquisitions and buyer responsibilities through real-world legal cases. Delve into the complexities of unassumed seller contracts, as illustrated by Tower Automotive Operations USA I, LLC v. Vari-Form Manufacturing Inc. Learn how meticulous legal diligence and strategic foresight are essential for navigating the complexities of M&A agreements and safeguarding the interests of all parties involved.
M&A Stories
April 11, 2024
In the realm of mergers and acquisitions, the acquisition of a business’s assets offers buyers the strategic advantage of selectively assuming seller contracts. However, nuances arise when buyers find themselves accountable for unassumed seller contracts, as exemplified in a recent case.
In 2019, an acquisition unfolded in the automotive industry, involving a business specializing in highly specific components for automotive bodies and structural parts. Notably, the buyer opted not to assume a 2017 contract with a prominent manufacturer of engineered automotive components, despite its significance. This contract pertained to supplying a vital part for the Jeep Wrangler platform identified as lasting six years, but requiring the seller to supply the parts through the program’s lifespan.
Following the transaction, the buyer honored the contract’s terms, providing parts at the agreed-upon price until 2023. However, when proposing a 17% price adjustment thereafter, tensions arose. The customer, dissatisfied with the proposed increase, sought legal recourse, petitioning a Detroit federal district judge for relief.
In a notable ruling, the court sided with the customer, issuing a preliminary injunction compelling the buyer to continue supplying parts at the contractual price. Crucially, the court determined that by fulfilling the contract from 2019 to 2023, the buyer implicitly assumed its obligations, despite the absence of explicit agreement within the asset purchase agreement.
This case, Tower Automotive Operations USA I, LLC v. Vari-Form Manufacturing Inc., underscores the importance of understanding the implicit responsibilities associated with unassumed seller contracts in M&A transactions. It serves as a poignant reminder for buyers to meticulously evaluate contractual obligations and implications, even when not expressly assuming them.
As entrepreneurs, business owners, CFOs, CEOs, board members, and professionals across various industries consider acquisitions as growth strategies or exit opportunities, this case illuminates the complexities inherent in navigating M&A agreements. It underscores the critical role of legal diligence and strategic foresight in safeguarding the interests of all parties involved.
In conclusion, while M&A transactions offer lucrative prospects for expansion and consolidation, prudent attention to contractual nuances is paramount. Tower Automotive’s legal saga serves as a beacon, guiding stakeholders through the intricate terrain of asset acquisition and contractual obligations.
Case Reference: Tower Automotive Operations USA I, LLC v. Vari-Form Manufacturing Inc. Case No. 24-cv-10144, United States District Court, E.D. Michigan, Southern Division, (February 15, 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 connecting with 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
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Podcasts https://www.buzzsprout.com/2142689/12339043
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
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