A Delaware court recently ruled on a significant business dispute between Viasat, Inc. and L3Harris Technologies, Inc., stemming from a $2 billion acquisition. The case, Viasat, Inc. v. L3Harris Technologies, Inc., filed under docket number 2024-0713-LWW, addresses how post-closing adjustments to the purchase price should be handled. The ruling impacts how companies approach similar transactions and accounting practices in the future.
The dispute arose after L3Harris acquired Viasat's Link-16 Tactical Data Links business in January 2023. Following the acquisition, the parties disagreed on the final purchase price, particularly regarding working capital adjustments. Viasat challenged the accounting expert's decisions that favored L3Harris, claiming the expert exceeded its authority as outlined in their asset purchase agreement.
Viasat is a publicly traded corporation that provides satellite services and secure networking systems, while L3Harris is a defense contractor also publicly traded. The acquisition was part of L3Harris's strategy to expand its capabilities in tactical data links. The asset purchase agreement specified that any disputes regarding working capital adjustments would be resolved by an independent accounting expert.
After the acquisition, L3Harris submitted a closing statement that calculated a lower final purchase price than initially agreed upon. Viasat contested several adjustments proposed by L3Harris, leading to a series of negotiations and ultimately to the involvement of the accounting expert, Grant Thornton LLP. The expert's report favored L3Harris on most disputed items, prompting Viasat to file a lawsuit challenging the expert's authority and interpretation of the asset purchase agreement.
In its ruling, the court granted Viasat summary judgment on one of the disputed items, stating that the accounting expert had exceeded its authority by applying a different accounting standard than what was agreed upon in the asset purchase agreement. The court noted, "Grant Thornton lacked the contractual authority to then proceed to Tier 2 of the Accounting Principles." This ruling confirmed that the specific terms outlined in the agreement must be adhered to when resolving such disputes.
However, the court ruled in favor of L3Harris on two other disputed items, stating that the accounting expert acted within its authority and followed the proper accounting principles as outlined in the agreement. The court emphasized that the expert's determination on these items was consistent with the agreement's requirements.
This ruling is significant for both Viasat and L3Harris, as it sets a precedent for how post-closing adjustments are handled in future mergers and acquisitions. It underscores the importance of clearly defined terms in asset purchase agreements and the need for both parties to adhere to those terms during the post-closing adjustment process. The decision also highlights the role of independent accounting experts in resolving disputes, as their interpretations can have substantial financial implications.
The outcome of this case may influence how companies draft their asset purchase agreements in the future, particularly regarding the resolution of accounting disputes. Companies may seek to clarify the roles and limitations of accounting experts to avoid similar disputes.
As for what’s next, it remains to be seen if either party will appeal the ruling. The court has directed both parties to confer and submit a proposed form of judgment implementing these rulings within 14 days. If either party believes the court's interpretation of the asset purchase agreement is flawed, they may choose to pursue an appeal.