Mergers and Acquisitions

Merger agreements involving acquisitions of private companies often contain terms creating post-merger obligations or “earnouts” in favor of certain classes of selling stockholders.  To address potential claims that may arise from such post-merger arrangements, selling stockholders typically designate a “shareholder representative” to handle such claims on their behalf pursuant to specifically delineated rights and duties.  In Fortis Advisors, LLC v. Allergan W.C. Holding, Inc., 2020 Del. Ch. LEXIS 181 (Del. Ch. May 14, 2020) (Zurn, V.C.), the Delaware Court of Chancery addressed the scope of such rights and duties in the context of a discovery dispute.  The Court considered the shareholder representative to be distinct from the selling stockholders on whose behalf the representative is acting, such that the selling stockholders were not deemed to be “parties” to a claim pursued by the representative.  Thus, in a letter ruling, the Court held that the defendant could obtain discovery of the selling stockholders only through third-party discovery, not through party discovery directed to the shareholder representative.  The Court based its decision on a strict reading of the terms of the agreements establishing the shareholder representative and negotiated information rights contained therein.
Continue Reading Delaware Court of Chancery Strictly Construes Right to Discovery of Stockholders Represented By a Contractually Created “Shareholder Representative”

Volume X – Accounting for the Cost of Business Combinations Under Government Contracts

Mergers and acquisitions create additional costs and complex accounting issues for government contractors.  There are fees for accounting, legal, and business consultants.  There may be restructuring costs associated with combining business operations.  Segments may be closed and retirement plans may be terminated.  Golden handcuffs and golden parachutes are also common.  Assets may be revalued, goodwill may be created, and there may be changes in cost accounting practices.Continue Reading What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume IX – Unclassified Contracts?  Foreign Buyers Still Make a Difference

Last month, we discussed the extent to which a foreign buyer can introduce an unacceptable level of foreign ownership, control, or influence (“FOCI”) that, absent mitigation, will render the target ineligible for the facility security clearances needed to perform classified work. This month, we look at foreign ownership through a broader lens.  Specifically, we consider how the United States regulates the proposed acquisition of a U.S. business by a foreign interest, irrespective of whether classified contracts and classified information may be involved in the planned transfer.Continue Reading What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume VI —Organizational Conflicts of Interest:  When the Whole Is Less Than the Sum of Its Parts

An organizational conflict of interest (“OCI”) arises when the performance of one contract undermines a contractor’s objectivity or creates an unfair competitive advantage with respect to another contract.  An agency cannot issue an award to a contractor that possesses an OCI unless that OCI has been avoided, mitigated, or waived.  Many government contracts include clauses that require contractors to avoid potential OCIs, to notify the Government of any OCIs that arise after award, and to work with the Government to mitigate any such OCIs.  Some contracts also avoid OCIs proactively by precluding the contractor from performing specific types of work.Continue Reading What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers