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Portland Business & Commercial Law Blog

Business formation is a consequence of mergers and acquisitions

In Oregon and elsewhere, mergers and acquisitions are a common business activity that serves an important purpose for existing companies. For a company that wants to grow in certain activities, increase its geographical locations or offer new products, mergers and acquisitions is a strong option that is available. This method of business formation is very effective and generates solutions that can be quickly implemented.

There are always intended consequences when a business decides to engage in the acquisition of another business. This often relates to the need to grow the company in services and product offerings that are seen as necessary to achieving the business plan. For example, one fairly substantial acquisition occurred recently between Altair Engineering Inc. and Datawatch Corp. Altair paid $13.10 per each share of Datawatch for a deal estimated as having a value of $167 million.

Business litigation may concern rescission of a company purchase

An interesting legal issue was recently litigated in another state but the outcome will be likely be influential in the Oregon courts as well. The legal issue in the business litigation case is when can a company cancel an acquisition of another company when the other party's business sharply declines after entering the contract. The court was given the task of deciding whether the business of the firm had suffered a "material adverse change" after the deal was finalized.

The state court's highest appellate court had to decide whether to reverse the lower court's decision to allow Fresenius SE to rescind a deal to purchase Akorn, Inc., a maker of generic injectable drugs. While awaiting the purchase transaction, lawyers for Fresenius claim that Akorn's business suffered rapidly falling revenues and operational problems. Fresenius alleged that it discovered that Akorn would not meet profit projections.

Buying an ongoing business is a safer way of business formation

Entrepreneurs in Oregon often opt to purchase an established, successful business for obvious reasons of lowering their risk going forward. The process of purchasing a going concern is not quite as easy as it may appear at first blush. Every aspect of business formation contains pitfalls that must be prevented and due diligence that must be performed.

The buyer should get a handle on how much of a capital expenditure he or she has available to invest in the purchase transaction. Additional investment funds should be available for the time right after the purchase. There will inevitably be improvements to install to make the business even more steady in its returns.

What to think about before becoming partners

It seems like the perfect situation. You’ve come up with a fantastic idea for a new business, and you even have a person (or two) who seem just as excited as you about turning it into a thriving business.

Forming a partnership comes with a lot of potential liability if you and your partner can’t work together as well as you had hoped. Even if the idea came from both of you, you might still want to be cautious about officially joining forces.

Contracts made for software and hardware are difficult to reject

Nearly all local county and city governments in Oregon and nationwide have by now switched to some form of a digital system of data retrieval and storage. For example, the old ways of having clerks type massive deeds by hand into heavy, burdensome record books are dead. Now vendors offer contracts where they provide high-tech scanning, indexing, and retrieval functions in one package of software.                                              

It is still necessary for consumers to know how to access and order copies of that material that is open to the public. Thus, when software is sold to a government agency, the purchase and sale contracts may provide for installation of the software, coordination of the network of machines and teaching the employees and even the consuming public how to use it. In addition, sometimes the vendor providing the software will also provide suitable hardware, especially where the agency is using outdated hardware.

Business formation may include purchasing an ongoing enterprise

There are many details to consider when buying a business in Oregon or anywhere else. It is true that purchasing an ongoing business may give the entrepreneur a better chance of succeeding by taking over a tried-and-true enterprise. However, even in this easier area of business formation numerous perceptions can prove wrong and backfire after the purchase. 

A purchaser should therefore engage in a sufficient amount of due diligence. The first thing that may be required in the purchase process is the signing of a confidentiality agreement. This will protect the seller by assuring that the prospective purchaser will not reveal the seller's secrets and inside knowledge. It is important to get a commitment in writing from the prospective purchaser that the information shared will remain secret and never provided to third parties or the public.

Business formation process requires cybersecurity due diligence

When starting a business in Oregon due diligence requires that issues of data privacy, cybersecurity and the risk of data breaches be thoroughly researched and accounted for. The same applies in the business formation process that accompanies mergers and acquisitions. The problem of finding security weaknesses and even breaches after the acquisition of a business is common but sometimes disastrous.

When a significant post-acquisition security problem is discovered, it may bring a variety of negative consequences for the transaction and the companies involved. This may include shareholder lawsuits, securities fraud charges and other financial and operational risks. Some of the threats that must be confronted and handled during a merger or acquisition include ransomware threats, phishing schemes and the hacking and release of sensitive emails.

Business litigation claims bank's mishandling of customer account

Scams against funds held and processed by banking institutions are increasing, including  in Oregon. In one such incident, a computer services company recently filed a multi-count business litigation lawsuit against a savings bank that is alleged to have failed in its duty to protect the company's cash deposits in the bank. It is alleged that the bank received an email from a purported employee of Precision Computer Services directing the bank to send $67,560 to a bank in another country.

The bank fell prey to the scam and sent the money. The lawsuit alleges several elements of bank negligence in failing to identify the fraudulent nature of the request. The bank ignored the fact that the computer company had no connection to that country and had not sent funds there in the past. Plaintiffs claimed that the bank did not have internalized, industry-recognized protocols for security protection in similar transactions.  

Business litigation case: team says city breached contract

Sports agreements between municipalities and private owners of minor league teams are fairly commonplace in Oregon and other states. Sometimes, the agreements don't work out as planned, and disputes arise. These are often over commitments by one or both parties to contribute promised financing or other resources as part of the contract. When the meaning of the contract becomes hopelessly tied up in conflicting accounts, the dispute may end up as a business litigation lawsuit.

One famous ex ballplayer, Cal Ripken Jr., has been in the minor league baseball business since his retirement some 20 years ago. Ripken resorted to business litigation in the form of a breach of contract complaint this past week against the city where his team is located. The lawsuit claims that the city, which owns the ballpark, has failed in its agreement made at the inception of the contract to upgrade and modernize the park.

Appellate court reverses direction of business litigation case

Shareholder suits against a company are fairly common everywhere, including in Oregon. One recent business litigation dispute gaining some public attention was a charge by two Xerox Corp. shareholders that a proposed business transaction with Fujifilm would hurt all Xerox shareholders. It was alleged that the CEO of Xerox continued to negotiate the transaction after management officials told him not to proceed further. However, Xerox stated that the CEO was authorized to continue negotiating.

One of the allegations against Xerox was that the company was breaching its fiduciary duty owed to the shareholders. Interestingly, the precise facts of the deal between Xerox and Fujifilm that is fueling the controversy have not been revealed in public press reports. In any event, the company seemingly won the battle recently when an appellate court ruled that the complaining shareholders did not have a case. Similar allegations of a fiduciary breach by Fujifilm in aiding and abetting Xerox had been a part of the case and were also dismissed.

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