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.
There were also reports of various drug development and manufacturing mishaps at Akorn. The attorneys for Akorn claimed that Fresenius was exaggerating minor miscues to orchestrate an exit from a deal in which it had suffered “buyer’s remorse.” The trial court in Delaware ruled that Fresenius was justified in extricating itself from the deal, which sent Akorn’s stock to the cellar. The trial court pointed to problems specific to Akorn, holding that the problems were not industrywide.
On appeal, Akorn asserts that the trial judge did not give the company sufficient credit for its timely efforts to address the problems during the business litigation dispute. The court instead chose to adopt the assertions of Fresenius to the effect that Akorn’s business had plummeted and that there were widespread operations and compliance problems. Fresenius argued among other things on appeal that Akorn took steps to conceal its violations after the deal was consummated. The court has taken the matter under review and will issue a decision in the near future. The highest appellate courts in Oregon would handle a similar appeal in a like manner.