Follow up on “In the Beginning…”

Posted on June 26, 2008

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An update on the blog I wrote about the pitfalls of using handshake agreements and letters of intent in business transactions.  Recently, litigation was commenced over the collapse of a 22 billion dollar acquisition financing of Clear Channel communications in similar circumstances.

The issue involves the bank negotiation over a deal after the parties had entered into a commitment letter to finance Bain Capital’s purchase of Clear Channel.  A bank’s commitment letter is similar in many respects to a letter of intent.  Specifically, the commitment letter leaves the drafting of documents until a definitive agreement and leaves many core terms unaddressed.

In this situation, the core term that was unaddressed was a change on market conditions.  With the credit meltdown, such a situation happened, and litigation ensured (for full story click here).  Whether a small transaction or a multibillion dollar transaction, the issues are often the same, and the importance of clear and complete agreements cannot be understated.

Mike Goodrich, Goodrich Law Firm, LLC

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