It is not unusual for a dealership lawyer to first learn of a sale transaction when he or she receives a signed Letter of Intent (LOI) from the client. There is a serious moment of anxiety when counsel realizes that the LOI has been drafted and signed without any lawyer input. It could be good (not likely), merely OK (the most common) or something disastrous (rare, but worth considering).

It is vastly better for counsel to be brought into the deal well before that point, but we lawyers work with the facts we have. Before you accept the spin by your business manager, your broker or the other side to the effect that the LOI is non-binding and does not deserve much attention, let me share with you the facts of what is probably the most significant case in the history of Letters of Intent. The case of Texaco Inc. v. Pennzoil, involved a fight between Pennzoil and Texaco over the acquisition of the Getty Oil Company, which at that time had massive oil reserves.

Pennzoil was first to the table and negotiated a "Memorandum of Agreement" with the Getty shareholder representatives, which, while not styled as a letter of intent, was intended to serve the same function. The parties then issued a press release disclosing the agreement. The document in question said that the parties had "agreed in principal" to a merger, but that the transaction was subject to subsequent board approval and would be more particularly described in "definitive agreements." In addition to the press release, both sides communicated with others in a manner suggesting that the deal was in the bag.

Read the full article, "A Valuable M&A Tool or a Waste of Time?" written by George Taylor, III.