¶ … contract was formed by Allegheny Energy and Merrill Lynch so that Allegheny Energy could acquire the Global Energy Markets Unit (GEM) division of Merrill Lynch. A definitive agreement was signed by Merrill Lynch and Allegheny Energy, and under the terms of that agreement Allegheny Energy would purchase GEM for $490 million plus a 2% equity interest. The transaction would be viewed as a purchase, and therefore Allegheny's earnings per share would be expected to rise dramatically (Allegheny, 2005). It was also stated, though, that there were many variables that could affect the ultimate outcome of the transaction, and that there were aspects of it that were beyond the control of the companies. These were mentioned in the contract in order to be sure that everyone understood that many things were not guaranteed by the contract and that there was the possibility of unstable conditions in the market in the future, under the Private Securities Litigation Reform Act Safe Harbor Statement.
2. What were the elements of the contract pertaining to performance?
Where performance is concerned, the contract made it clear that there were no guarantees regarding the quality of the energy market, and therefore the merger/purchase between the companies did not necessarily mean that Allegheny was going to make a huge profit, or that Allegheny's shareholders would make a great deal. However, Merrill Lynch did misrepresent the GEM unit that they sold to Allegheny Energy in many different ways, and therefore Allegheny Energy felt that Merrill Lynch failed in its performance of the contract. Because Merrill Lynch failed to disclose the trades that it had made with Enron before Enron had all of its problems, Allegheny Energy believed that Merrill Lynch was dishonest and that the company misrepresented...
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