Opinion ID: 1776404
Heading Depth: 2
Heading Rank: 2

Heading: The relationship between the Disctronics Group, Mitsubishi, and MTI

Text: The underlying cause of action in this case concerns the Disctronics Group's acquisition of MTI from Mitsubishi, Inc., while the Disctronics Group held 51% of the stock in DMI and Quixote held the remaining 49%. The trial court's order granting the preliminary injunction found the following facts regarding the contacts between the Disctronics Group and Mitsubishi regarding the acquisition of MTI: In early February 1986, Donovan and Massey formed Disctronics, Ltd., to manufacture compact audio discs. Construction was started on a plant in Braeside Victoria, to service the Australia and New Zealand market. In mid-1986, Donovan traveled to Japan and negotiated with Mitsubishi for the purpose of purchasing mastering equipment for the Braeside plant. During the visit, Donovan learned that Mitsubishi was in the process of building a plant in Plano, Texas, with its joint venture partner, ElectroSound, to manufacture compact discs for the United States market. The trial court found that, during 1986, the Disctronics Group had begun to plan a global strategy. The court also found that the four key components of this global strategy were: (1) consolidation of the Australian/New Zealand market; (2) expansion into the European and U.S. markets through a network of sales offices and solicitation of a customer base; (3) acquisition of existing manufacturing facilities in Europe and the U.S.; and (4) persuasion of major record companies against `vertical integration' ( i.e., divesting or de-emphasizing manufacturing operation)all hopefully leading to the establishment of Disctronics Limited as the dominant independent producer in the compact disc industry. The trial court found that, as part of the Disctronics Group's global strategy, Donovan had negotiated a memorandum of understanding with Mitsubishi in November 1986, which stated, in part, that Mitsubishi Corporation, Memory Tech Corporation, and Disctronics Limited agree to continue the development of their global relationship for the benefit of all three partners. In July 1987, representatives of the Disctronics Group met with a representative of Mitsubishi and discussed the proposal that the Disctronics Group acquire the MTI plant in Texas. The trial court found that Donovan's notes from the meeting memorialized two important facts: The first is implicit: Disctronics Limited had broached the idea of buying the MTI facility sometime before that meeting (Donovan testified talks were on-going from March 1987). The second is explicit: Disctronics did not want to acquire Mitsubishi's interest only, but also that of its joint venture partner'100% of the [MTI] Plant in the U.S.A.' The trial court noted that while maintaining momentum in the Mitsubishi negotiations for MTI, Disctronics, Ltd., opened discussions with Quixote about the purchase of its plants in the United States. According to Donovan, those discussions proceeded simultaneously with the Mitsubishi negotiations between July and October 1987 and on parallel tracks. The Mitsubishi negotiations stalled in late September, and the Disctronics Group reached an agreement with Quixote to acquire DMI. Donovan testified that he had maintained continuous contact with Mitsubishi. He stated that he would inquire about MTI and also asked about rumors in the industry that Mitsubishi was having problems with its joint venture partner. In early 1989, Mitsubishi bought out its joint venture partner ElectroSound. The trial court found that Donovan had what it termed as the first tug on his bait during a November 1, 1989, telephone conversation with a representative of Mitsubishi, who, at the time, refused to discuss MTI and said only that he might be in a position to talk later, in December or after the first of the year. The negotiations with Mitsubishi resumed, and in December, Donovan telefaxed an offer to Mitsubishi. Mitsubishi acknowledged receipt of the offer and expressed an interest in further discussion. A meeting took place in Japan between Donovan, Massey, and a representative of Mitsubishi. At the end of the meeting, Donovan, on behalf of Disctronics, Ltd., executed a Memorandum of Intent, which contemplated another offer. On January 18, 1990, Donovan submitted another proposal to Mitsubishi, and on January 29, Mitsubishi, by a telephone conversation, accepted the Disctronics Group's offer. On February 23, 1990, Mitsubishi and Donovan executed an agreement providing for the purchase of all MTI stock by Disctronics, Ltd. The transaction was to close March 2, 1990, and no cash was due at closing. The purchase price, $13 million, was to be paid by two notes: (1) the first note, which was due 90 days after closing, for $6.5 million; and (2) an installment note payable between 1992 and 1995 for the remaining $6.5 million. Both notes were secured by a pledge of MTI's real estate and equipment assets. Upon payment of the first note, Disctronics, Ltd., could substitute its guaranty as security for the long-term note, thereby releasing MTI assets from the pledge. Also, the interest of Disctronics, Ltd., in the Mitsubishi contract was assignable. On March 1, 1990, Disctronics, Ltd., acquired the offshore Cook Island shelf corporation, Moray Investments, and assigned the contract rights and interests under the MTI purchase agreement to Moray.