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Matthew J. Rifino of McCarter & English Matthew J. Rifino of McCarter & English.

The Delaware Court of Chancery rejected a purchaser’s efforts to prevent a seller from adopting a method of calculating the post-closing purchase price adjustment that was inconsistent with the seller’s pre-closing accounting practices. In lieu of an apples-to-apples comparison, the court interpreted the purchase agreement to require the purchaser to calculate the company’s tangible net worth in accordance with specific accounting principles, even though the seller failed to correctly apply such principles in its pre-closing financial statements. The Golden Rule court concluded that a correct or accurate application of accounting principles fell within the ordinary meaning of a provision requiring the parties to calculate post-closing purchase price adjustments in accordance with specific accounting principles unless they provided otherwise within the four corners of the agreement.

Golden Rule Financial Corp. purchased USHEALTH Group Inc. for a base purchase price of $750 million, subject to a post-closing purchase price adjustment. The post-closing adjustment was necessary to assess certain metrics at closing, and the purchase agreement established a three-step process for calculating tangible net worth. In the first step, the seller must estimate its own tangible net worth as of closing. Within 90 days of closing, the purchaser must prepare a separate calculation. In the event that the seller disputed the purchaser’s calculation, the seller must notify the purchaser in writing, and if the parties could not resolve the dispute, they must engage a third-party firm to calculate the tangible net worth.

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