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Company A has a contract to produce widgets for the State for $5 per widget. The State also has a contract with Company B to produce the same widgets for $4.50 per widget. Company A acquires Company B. What is the price per widget following the acquisition?

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It depends

There are two possibilities when company A acquires company B:

  1. Company B continues its existence with a new owner. In that case the state is in exactly the same position as it was before the acquisition.
  2. Company B ceases to exist and it’s assets, including the contract with the state, become the property of Company A. Both contracts still exist and have full legal force.

Notwithstanding, in either scenario, both contracts continue.

It’s unclear from the question if these contracts are for a fixed amount of the goods or for goods to be supplied as and when ordered.

If the former, then both contracts will need to be fulfilled with payment being $5 per unit for those produced under contract A and $4.50 per unit for those under contract B.

If the latter, then the state may be able to place orders under either contract subject to any limitations. For example, one or both of the contracts may have minimum or maximum order amounts or “take or pay” clauses or different delivery times etc.

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