Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Company

Supreme Court of Delaware · 2017 · Corporations

166 A.3d 912 (Del. 2017)

Updated August 22, 2026

CorporationsMergers and acquisitionsPurchase price adjustmentContract interpretationtrue-upnet working capitalGAAPconsistency

Facts

To resolve disputes arising from their collaboration on nuclear power plant construction, Chicago Bridge agreed to sell its subsidiary Stone to Westinghouse under a Purchase Agreement with a zero-dollar closing price, a post-closing true-up based on Stone's net working capital, a broad post-closing liability bar, and indemnification by Westinghouse of Chicago Bridge for Stone-related liabilities. The Agreement required the closing statements and working-capital calculations to be prepared from Stone's books and records in accordance with GAAP applied on a consistent basis and with agreed principles tied to Chicago Bridge's past practices and the financial statements Chicago Bridge had represented were GAAP compliant. After closing, Westinghouse claimed Chicago Bridge owed it over $2 billion, largely by attacking historical accounting treatments already reflected in those financial statements rather than identifying changes in Stone's business between signing and closing. Chicago Bridge contended those claims were really barred representation-and-warranty claims and could not be funneled through the true-up before the Independent Auditor.

Issue

Whether the Purchase Agreement's true-up procedure and submission to the Independent Auditor allowed Westinghouse, after closing, to challenge Chicago Bridge's historical accounting practices and the GAAP compliance of historical financial statements, or whether the true-up was limited to changes in facts and circumstances between signing and closing consistent with the agreement's liability bar.

Rule

A court must read specific provisions of an acquisition agreement in light of the entire contract and its commercial setting. Where a true-up requires working capital to be determined from the target's books and records using GAAP consistently applied with the seller's historical financial statements, past practices, methodologies, and policies, the true-up is a limited mechanism to measure changes in the business between signing and closing, not a vehicle for post-closing claims that the seller's historical financial statements or accounting practices violated GAAP. An independent auditor acting as an expert, not an arbitrator, may resolve only those narrow disputes the agreement actually submits to that expert.

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Redwood Grid Solutions agreed in Houston to sell its battery-storage subsidiary to Lakefront Energy Holdings under a stock purchase agreement with a $0 closing price, a post-closing net working capital adjustment, and a clause stating the seller would have no post-closing monetary liability for breaches of representations absent fraud. The agreement required the closing statement to be prepared from the subsidiary's books and records using GAAP consistently applied with the seller's historical financial statements and past practices. After closing, Lakefront claimed the seller's pre-signing revenue-recognition method had always violated GAAP and sought a $300 million payment through the working-capital true-up.

Which is the strongest argument for Redwood that Lakefront's claim cannot be submitted to the independent auditor?

Explanation. The majority opinion treated a true-up like this as a limited mechanism to measure changes in the business between signing and closing, especially where the agreement requires GAAP to be applied consistently with historical financial statements, past practices, methodologies, and policies. A buyer may not use that process to re-litigate whether the seller's historical financial statements or accounting practices complied with GAAP, because that would effectively revive barred representation-and-warranty claims and nullify the liability bar. (Derived from Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Company (2017).)