I have a small manufacturing company and signed a letter of intent with a buyer. The contract gives a corporate partner a right of first refusal. They have now taken the full 30 days twice, asking for extensions and more financials. My buyer is getting nervous and may walk. Has anyone dealt with a ROFR being used just to stall? What can I actually do?
ROFR
What to do if corporate uses ROFR just to stall your sale
Do you have a hard deadline in the ROFR language? If it says "within 30 days" with no extension mechanism, you may be able to force the issue. Get your lawyer to send a notice that the ROFR period has expired and you are proceeding with the third-party sale. I had a similar situation with a distribution agreement, and a firm deadline letter moved things along. Not legal advice, obviously.
How long has this been going on? If the buyer is already nervous after two extensions, you might need to decide whether the corporate partner is a real buyer or just running out the clock. Have you asked them directly whether they intend to exercise the right?
They will not answer that directly. Every response is "we are still evaluating." The ROFR says they have 30 days after receiving the terms, and they have now asked for two 30-day extensions. My buyer's exclusivity period ends in three weeks.
I am not a lawyer, but from what I have seen, a ROFR is supposed to be a right, not a veto. If they keep stalling without exercising, you may have a claim for tortious interference or breach of the implied duty of good faith. But litigation is expensive and slow. The practical move might be to tell the buyer the truth and ask for a short extension while you send a formal demand letter.
Also check whether the ROFR applies to the asset sale or the stock sale. Sometimes a corporate partner only has a right on a stock transfer, and an asset sale can bypass it. That is a question for your M&A attorney, not me.
The extensions are the tell. If they were serious, they would have exercised or waived by now. I would stop granting extensions. Send a written notice that no further extensions will be granted and that you will proceed with the third-party sale unless they exercise by a date certain. If they sue to block, at least you will know where you stand.
One more thought: document everything. Every request, every extension, every delay. If this ends up in court, a clear timeline showing they were stalling will matter. I would also loop in your buyer and give them a realistic update. Buyers hate silence more than bad news.
Thanks. I have counsel involved, but I wanted to hear from poeple who have been through it. The buyer is willing to extend exclusivity by two weeks if I can show progress. I am leaning toward sending a firm deadline letter this week.
What does your shareholder agreement or the original Contract say about remedies? Sometimes the ROFR has a liquidated damages clause or a specific performance provision. If the corporate partner breached the timeline, you might have more leverage than you think. Ask your lawyer about whether the ROFR is even enforceable if they did not follow the notice requirements.
Does the corporate partner have any other relationship with youur business? Supplier, customer, lender? If so, a firm letter might backfire. Just something to consider.
That is a good point. If they are also a supplier, you may need to tread carefully. But if they are just a strategic investor with a ROFR, they are using the clause to freeze your options. I would not let them keep doing that.
OP, please update when you send the letter. I am curious how they respond. A lot of these corporate partners fold when they realize you are not going to keep playing the extension game.
Also, make sure your buyer knows the ROFR timeline. If the buyer walks and the corporate partner never exercises, you are back to square one. The firm deadline letter protects both sides.