Avoiding Oral Breach Claims Arising From M&A Discussions
M&A negotiators typically assume that, unless and until they sign a definitive acquisition agreement, either side is free to walk away from discussions at any time. Negotiators will often sign a letter of intent in the early stages of discussions specifically stating that the parties are only discussing a possible transaction and that none of them has any obligation to try to close the deal unless they sign a formal transaction agreement. However, a March, 2010 case in Georgia demonstrates how easily such an assumption can be upended. This case, Turner Broadcasting System, Inc. v. McDavid, resulted in a damage award of $281 million against Turner Broadcasting System based on its breach of an alleged oral contract formed during the negotiation process. The jury reached this decision even though (i) no definitive agreement was ever signed, and (ii) the parties had signed a letter of intent stating that neither party would be bound unless a definitive agreement was signed. This case serves as a warning to deal practitioners to watch carefully what they say and do during negotiations.
Lee J. Potter, Jr., Partner,
Duane Morris LLP
- The recent Turner Broadcasting vs. McDavid case was a jolt to M&A practitioners. I will briefly describe the facts and outcome (unless another panelist wants to).
- Important drafting points to take away from the Turner holding, including
- the need to include waiver of jury trials, and
- making sure the no-oral-agreement provision survives termination.
- The importance of deal participants to be careful about loose statements in a negotiation that could be taken out of context later.
- Implications of the Turner case on other typical M&A practices (such as advance preparation of press releases).
Oscar A. David, Chair, Mergers & Acquisitions/Securities/Corporate Governance,
Winston & Strawn LLP
- Preliminary Agreements are intended to provide some comfort for both purchasers and sellers that the parties are on the same page and will achieve a transaction optimal for both sides. These agreements are not intended to bind the parties to close a transaction, but instead are intended to provide the basis for further discussions while carrying a limited number of binding provisions (confidentiality, exclusivity)
- Poor drafting of these Preliminary Agreements and improper actions by the negotiating parties can result in these Preliminary Agreements having unintended binding effects.
- Advantages and Disadvantages of the use of Preliminary Agreements
- Basic Provisions of Preliminary Agreements—Binding v. Non-binding
- Texaco v. Pennzoil
- Turner Broadcasting v. McDavid
- Practical Lessons from these cases to apply to future transactions (i.e. non-binding nature of letter of intent must survive termination)
Who Should Attend:
- M&A Investment Bankers
- M&A lawyers
- In house M&A practitioners
Lee J. Potter, Jr. practices in the area of corporate law with a concentration on mergers and acquisitions and private equity. Mr. Potter regularly advises foreign and U.S. companies, both publicly held and private, on a wide variety of corporate and transactional matters, including mergers, acquisitions, venture capital and private equity transactions, equity and debt securities offerings, bank credit facilities, restructurings and general corporate issues. He has represented companies across a broad array of industries, including aerospace and defense, manufacturing, technology, financial services, healthcare, transportation, retail, fashion, media, insurance and energy.
Mr. Potter is a 1992 graduate, with honors, of the University of North Carolina School of Law (joint J.D./M.B.A.), where he was articles editor for the North Carolina Law Review and a member of the Order of the Coif, and a graduate of Oberlin College. He is a member of the American Bar Association and the New York State Bar Association.
Lee J. Potter, Jr. practices in the area of corporate law with a concentration on mergers and acquisitions and private …
Oscar David is a partner and chair of Winston & Strawn’s Mergers and Acquisitions, Securities & Corporate Governance Practice. This Practice is ranked as a “Tier 1” firm in the area of middle market M&A by Legal 500 USA and is ranked in the Chambers Guide as well for Chicago. He concentrates his practice on public and private mergers and acquisitions, corporate governance, private equity and venture capital, and corporate finance matters. He regularly advises senior executives on sensitive challenges arising in these matters. In the past decade, he has represented clients in connection with consummated transactions valued at over $60 billion. His representative clients include Motorola Solutions, Inc., Sony Electronics Inc., The Allstate Company, Infotech Enterprises Limited (based in Hyderabad, India), Sterling Capital Partners, Waud Capital Partners, CIVC Partners, Loop Capital, Hopewell Partners Venture Fund, Ports of America and Viscofan, S.A.
Mr. David has recently been active in professional speaking, as follows:
- In June, 2011 he spoke before over 50 public company general counsel as a panelist on the following topic: Three The Hard Way: Managing the General Counsel’s Legal, Fiduciary and Ethical Responsibilities
- In May, 2011, he spoke before a CFO roundtable consisting of public company CFOs on the following topic: Advance Preparation: Unsolicited Acquisition Proposals
- In December 2010, he spoke before a CFO roundtable consisting of public company CFOs on the following 2 topics: Dodd-Frank’s Impact On Non-Financial Institutions; and Recent M & A Trends
- In October, 2010 he spoke in Beijing before a group of Chinese companies and M&A professionals on the following topic: M&A in the United States for Chinese Companies
- In October, 2010, he spoke before a group of public and private company senior legal professionals on the following two topics: Is a Special Committee Appropriate when Responding to a Takeover Proposal Involving Board Members with Potential Conflicts of Interest; and Preparing your Company for Dodd Frank Whistleblower Provisions
- Under his leadership, Winston & Strawn has represented Motorola Solutions in consummated transactions valued at $40 billion, including its recent $1.1 billion divesture of its wireless network infrastructure business to Nokia Siemens Networks (and associated settlement agreement with Huawei Technologies), $3.9 billion Symbol Technologies acquisition, its $300 million equity investment in Clearwire Corporation as part of an aggregate $1 billion investment by Intel Capital and investors and its $1.6 billion divestiture of its semiconductor components chip group (now known as ON Semiconductor).
- He recently represented Sony Electronics Inc. in its acquisition of Convergent Media Solutions.
- He recently represented Waud Capital Partners, which along with MetalMark Capital (an affiliate of Citigroup) made a $300 million equity and debt investment in Maxum Petroleum, a leading energy logistics company, in one of the largest 2009 private equity investments in the energy sector.
- He also has represented venture capital firms and corporate venture investors in more than two dozen venture capital financings as well as various exit transactions.
Honors and Awards
Mr. David was named by Crain’s Chicago Business to its list of “40 Under 40” rising stars in business, government, and the arts. He also was recently selected as a leading attorney by Legal 500 and as one of 15 recommended attorneys in Chicago for corporate finance, mergers and acquisitions, and joint ventures by Global Counsel 3000, which is published by the Practical Law Company. He also has been named a Illinois Super Lawyer since 2008. In 2002, he was the recipient of the Chicago Project for Violence Prevention’s Annual Corporate Service Award.
Mr. David is a member of Winston & Strawn’s Technology Committee. He serves on the board of directors of the Chicago Project for Violence Prevention as chair of its Development and Board Development Committee. He has served on the board of directors of The George Washington University Alumni Association and has been a guest lecturer at the J.L. Kellogg Graduate School of Management, Northwestern University.
He received his J.D. from the University of Chicago Law School in 1987 and graduated Phi Beta Kappa from George Washington University in 1984.
Oscar David is a partner and chair of Winston & Strawn’s Mergers and Acquisitions, Securities & Corporate Governance Practice. This …
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