Corporate
Aug. 6, 2002
Frontera Sues to Force Merger
Earlier this year, Loudcloud Inc. agreed to acquire Santa Monica's Frontera Corp. But Loudcloud has been trying to renegotiate the deal, so Frontera is going to court.
Earlier this year, Loudcloud Inc. agreed to acquire Santa Monica's Frontera Corp. But Loudcloud has been trying to renegotiate the deal, so Frontera is going to court.
Frontera has sued Sunnyvale-based Loudcloud, alleging that the company tried to wiggle out of the original merger deal to the detriment of Frontera. Represented by Los Angeles' Mitchell, Silberberg & Knupp, Frontera filed suit in Santa Clara County Superior Court on July 16 to compel Loudcloud to proceed with the original transaction.
Loudcloud, which manages Internet operations for businesses, announced in February that it would acquire application services provider Frontera in a $13 million stock swap. The suit alleges that Loudcloud reversed course in late June, after it had announced a transaction to sell its managed hosting business to Electronic Data Systems Corp. At that time, Loudcloud notified Frontera that it wanted to negotiate an entirely new business deal - one with inferior terms for Frontera, according to the complaint.
The complaint calls the situation a "classic example of buyer's remorse after a binding agreement had been executed, seeking to renege on or renegotiate that agreement after it determined that it no longer liked the deal it had entered into with Frontera."
Loudcloud spokesman Mike Moeller says the company still is negotiating with Frontera, discussing terms of closing the deal. He adds that the discussions with Frontera have no impact on the closing of the EDS deal.
But Mitchell Silberberg partner George Borkowski says that Frontera isn't interested in renegotiating the terms of the acquisition.
"The litigation is about enforcing the original terms of the deal, not renegotiating the terms of the deal," Borkowski says.
But he adds, "Loudcloud has expressed an interest in resolving the case before it gets actively litigated, and Frontera is willing to see whether we can do that."
Silicon Valley law firm Wilson Sonsini Goodrich & Rosati represented Loudcloud in the original merger agreement with Frontera. Loudcloud declined to provide any specific information about its outside counsel in the litigation.
Frontera says that it has a lot at stake in the dispute. In anticipation of the merger with Loudcloud, Frontera laid off most of its employees, canceled 401(k) plans and otherwise pared its operations to the bare minimum.
"Since they repudiated that obligation, Frontera had no choice but to sue to enforce that agreement," Borkowski says.
Toni Vranjes
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