Buyers and sellers and their counsel allocate risk in stock purchase or merger agreements. A buyer, for example, may not be willing to close if there is threatened regulatory action affecting an asset or liability it is acquiring. The parties then negotiate how to address this risk, often including the buyer’s right to withdraw from the transaction unless the threat disappears. When a buyer seeks to avoid closing on the basis of threatened legal action as negotiated with the seller, the seller may have a different view as to whether the negotiated “threat” actually exists. Such was the circumstance in Rexam v. Berry Plastics, C.A. No. 10596-VCN (Dec. 3, 2015), and its holding in favor of the seller provides important guidance regarding what constitutes “threatened action” that might permit a buyer to be relieved of its obligation to close.


Seller Rexam Inc. and certain affiliates (the seller) agreed to sell certain assets in its health care containers and closure business to Berry Plastics Corp. (the buyer) pursuant to an equity purchase agreement. Prior to closing, the Pension Benefit Guaranty Corp. (PBGC) wrote a letter to the seller inquiring of the adequacy of funding of certain pension obligations to be transferred to the buyer and of the buyer’s ability to fund the pension obligations. The parties then negotiated a side letter prior to closing in which they agreed that the buyer would only be obligated to accept the pension obligations if after 180 days post-closing there were “no pending or threatened legal or administrative action with respect to the PBGC inquiry.” If that condition were not satisfied then the buyer would have no obligation to accept the pension obligation. The parties closed the transaction on June 2, 2014, with the PBGC inquiry open.

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