Dive Brief:

• Bed Bath & Beyond last week appealed to the Chancery Court in Delaware to force 1-800-Flowers to follow through on its February agreement to purchase PersonalizationMall.com keepsakes site for $252 million. The retailer is also asking for attorneys’ fees and costs, according to a copy of the complaint emailed to Retail Dive.

• In the April 1 lawsuit, the retailer claims that “1-800-FLOWERS.COM attempted to unilaterally postpone the closing for 30 days citing its lack of resources to integrate the business, but Bed Bath & Beyond had already agreed to provide transitionary support and 1-800-FLOWERS.COM would not commit even to closing at the end of April,” according to a statement emailed to Retail Dive.

• For its part, 1-800-Flowers.com in an emailed statement said that it had “requested a reasonable delay” to April 30 “[d]ue to the unprecedented circumstances created by the COVID-19 pandemic,” including the ongoing closure of PersonalizationMall.com’s facilities. The company said it still wants to proceed with the deal.

Dive Insight:

When it was first announced, this deal seemed like a win for everyone involved.

The struggling home goods retailer​ bought the keepsakes site for $190 million in cash a little over three years ago, and was unloading it at a tidy profit (more than some analysts had expected). 1-800-Flowers.com CEO Chris McCann​ said at the time of the sale agreement in February that PersonalizationMall.com has seen “steady financial growth for the past several years, with revenues reaching more than $150 million in its most recent year” and the company expects it to “be accretive to our top and bottom-line results in fiscal 2021.”

The pandemic has thrown uncertainty into all aspects of retail, including e-commerce. 1-800-Flowers argues that includes PersonalizationMall.com, while Bed Bath counters that the pandemic doesn’t qualify as the kind of event that can legitimately alter their deal. In fact, their agreement specified such risks, which had to be something with “a disproportionate effect on the Company compared to other participants in the industries or markets in which the Company operates,” according to the lawsuit.

The retailer speculated that “1-800-Flower’s maneuvering, though couched as a mere delay by a month, is designed to allow it to ‘wait and see’ what impact the COVID-19 outbreak has on the Company’s business and to assess whether it should attempt to assert in the future a retroactive [reason] to argue it can terminate the Agreement,” according to the filing. “In essence, 1-800-Flowers is attempting to unilaterally convert the parties’ binding purchase agreement into merely an option agreement. That is not the parties’ Agreement and is utterly unreasonable.” 

Beyond simply wanting to follow through on the desired sale, Bed Bath & Beyond could be concerned about “purchase price adjustments,” which are based on financial metrics as of the date of closing, according to Alon Kapen, a partner at law firm Farrell Fritz. Delaying the closing for a month increases the likelihood that there are reasons to lower the purchase price. And failing to sell the business could render it “damaged goods” to some extent, making other buyers less eager to snap it up, he said.​

However, whether 1-800-Flowers has ulterior motives or legitimate ones, Delaware courts, in general, are loathe to rule against signed agreements, Kapen said in an interview. In any case, expect to see more such skirmishes in court as the pandemic takes its toll on business, he said.

“This is just the tip of the iceberg,” he said. “I think we’re going to see a lot of situations like this. Buyers, like they always have, will try to walk away from certain deals but will have difficulty without showing some proportionality. And sellers will be forced to take them to court. Each party has its perspective and is looking out for its interests. I think it’s too early to predict how this particular lawsuit and other lawsuits like it are likely to play out.”