Opinion ID: 1380390
Heading Depth: 3
Heading Rank: 2

Heading: Was a break-up fee needed to preserve Kelson's bid?

Text: The record suggests that although an assurance of a break-up fee may not have been needed to induce Kelson's bid, it nevertheless could have been useful to assure that Kelson adhered to its bid rather than abandoning its attempt to purchase the plant in the event that the Bankruptcy Court required an auction for its sale. A break-up fee certainly provides a benefit to an estate if a bidder remains committed to a purchase, though, as we have explained, we see no reason to believe that bidders who already have made a full and complete bid necessarily will abandon their efforts to obtain an asset without an assurance of a break-up fee. In this case, the Bankruptcy Court believed that the provision for the fee would deter other possible purchasers from bidding for the plant and would outweigh any possible benefit achieved for the estate by keeping Kelson committed to the purchase through the provision for the break-up fee. Clearly, the Bankruptcy Court was faced with a difficult choice. If the Court denied the break-up fee, then Kelson might abandon the purchase, as it supposedly did. If another suitable bid had not materialized and Kelson had walked away permanently from the purchase, the estate would have been harmed severely by the denial of a break-up fee. To avoid this result, the Court could have granted a break-up fee to secure Kelson's existing bid. Nevertheless, the Court decided that a $15 million break-up fee was not necessary for the protection of the estate. This decision, which we view from the Court's perspective on March 18, 2008, was justified by (1) Fortistar's assertion that it planned to continue bidding, (2) the binding language of the APA, and (3) the logical belief that Kelson would not abandon a fully negotiated agreement if no other bidder materialized. Though we do not decide the case on the basis of our knowledge of what happened after the Court denied the fee, as we decide the case on the basis of the record as of March 18, 2008, when the order from which Kelson appealed to the District Court was entered, there is no escape from the fact that the Bankruptcy Court's decision was shown to be correct when Fortistar placed a substantially higher bid for the assets.