Yesterday, a Delaware judge ordered ITG Brands to reimburse Reynolds American the full $251.5 million it paid to the state of Florida as part of a settlement agreement that pre-dated ITG’s acquisition of four cigarette brands a decade ago. ITG was attempting to cut the bill to $130 million by claiming Reynolds saved $112 million because ITG did not join the Florida settlement.
“The payments Reynolds made to Florida on behalf of ITG-owned brands aren’t excluded under the companies’ purchase agreement, and Reynolds is owed reimbursement of that amount to restore it to the position it held before ITG failed to assume that liability,” Vice Chancellor Lori W. Will of the Delaware Chancery Court wrote.
In 1997, Reynolds settled with Florida to resolve claims cigarette makers misrepresented the risks associated with smoking. In 2015, RJR sold its Kool, Maverick, Salem, and Winston brands to ITG for $7.1 billion. Florida’s settlement obligations assumingly shifted to ITG, but ITG didn’t sign on, leaving Reynolds to pay the full sum in 2023.
“ITG was not found liable for failing to join the Florida settlement agreement,” Will said. “I did not hold that it breached any such obligation in the asset purchase agreement. ITG was, instead, found liable for failing to assume the liability imposed on Reynolds by the Florida court.
“There is a fundamental problem with ITG’s argument. It centers the wrong harm. ITG presumes that the relevant breach is its failure to join the Florida settlement agreement. But I did not find that ITG breached any such obligation. I held only that it failed to assume the Florida judgment liability under [Asset Purchase Agreement] Section 2.01(c)(iv).”
