Tuesday, June 16, 2009

Acquisitions and consolidations continue in the food distribution industry in Puerto Rico and are relevant to Law 75

Acquisitions and consolidations of businesses are relevant to lawyers and experts litigating Law 75 cases in Puerto Rico. When a successor distributor acquires a product line or the business from the prior distributor, the purchase price becomes relevant when the manufacturer or principal terminates or refuses to renew the agreement with the successor distributor. It is relevant because Law 75 allows recovery for loss of goodwill and one of the factors in the methodology to compute loss of goodwill is the market value of the line (and the sales price in an arms-length transaction is one of many relevant factors). Thus, distribution lawyers and experts alike, monitor developments in acquisitions as sales prices could be relevant to future litigation.

Not surprisingly, sales prices are rarely reported publicly. For example, El Nuevo Dia reported today that Encinal Inc., d/b/a Star Meat, a distributor of refrigerated and frozen food products, acquired for "an undetermined sum of money" the commodities and food service businesses of Packers Provision, a distributor in Puerto Rico. The businesses include the sale and distribution of meats, poultry, and seafood. As part of the transaction, V. Suarez, one of the largest food distributors in Puerto Rico, will "administer" sales of the branded lines to "traditional channels." (A separate issue is whether a sub-distributor of branded products that is not appointed by the manufacturer is protected by Law 75).