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Appraisal of Panera Bread: Court of Chancery Again Defers to Deal Price, Denies Request for a Refund of the Amount of Synergies

Posted In Appraisal, M&A

In re Appraisal of Panera Bread Co., C.A. No. 2017-0593-MTZ (Del. Ch. Jan. 31, 2020).

JAB Holdings B.V. (“JAB”), a private company that also owns Einstein Bros., Caribou Coffee and Krispy Kreme, acquired Panera Bread Company (“Panera”) via a cash-out merger for $315.00 per share on July 18, 2017. Multiple dissenting shareholders (the “Petitioners”) filed an appraisal action, asserting that the fair value of their shares was $361.00 per share. Post-trial, the Court of Chancery disagreed with the Petitioners, ruling that the deal price minus synergies was the best evidence of fair value. This was because Panera had followed a reliable sale process and any flaws in that process did not undermine its reliability. Specifically, the Court held that, among other factors, the parties’ arm’s length negotiations, Panera’s disinterested and independent board, price increases during negotiations, the fact that no other parties bid on Panera either before or after the announcement of the merger, and the outreach that Panera did with potential buyers provided persuasive evidence of a reliable sale process.

The Petitioners contended that the merger suffered from flaws, which called into question whether the deal price reflected the fair value of the shares. Among other contentions, the Petitioners claimed that a coverage banker at Morgan Stanley, who worked with JAB, who had communicated with the Panera deal team at Morgan Stanley on two occasions, undermined the sale process. However, the Court noted that these communications had the effect of driving up the sale price for Panera. The Petitioners also argued that the CEO of Panera, having pushed for a price per share “not deep in the 300s” before the board received a full valuation and an accelerated timeline for the merger, undermined the sale process. The Court held that the Board chair’s early comments about valuation and the accelerated timeline did not distort the sale price because the CEO and board had deep knowledge of Panera’s value and the relevant market. The Court acknowledged that these aspects of the sale process were sub-optimal, but held that those flaws were not so grave as to undermine the reliability of the sale process. 

The Petitioners also contended that Morgan Stanley should have advised Panera to seek a go-shop provision, similar to the go-shop provision in JAB’s agreement when it acquired Krispy Kreme. Unlike in the Krispy Kreme case, however, the Court found that the trial record established that there were no other interested bidders with the capacity to purchase Panera. The board had worked with Goldman Sachs on two occasions and with Morgan Stanley to identify potential bidders in the years leading up to the acquisition. The board led discussions with a potential buyer a few years before Panera’s final acquisition and had an extensive knowledge of the market. No other bidders materialized after news of a potential acquisition of Panera leaked to the market. There was therefore no evidence that a go-shop provision would have yielded a higher sale price. Additionally, the Court held that Morgan Stanley properly had advised Panera by recommending a negotiation strategy that had been successful with JAB in prior transactions and was tailored to Panera’s position in the market. The negotiation strategy resulted in the board extracting two price increases that totaled $18.50 per share and a lower termination fee. Accordingly, the Court found these factors also supported that the deal price was persuasive evidence of fair value.

The Court deducted synergies totaling $11.56 per share from the deal price and found that the Petitioners were entitled to $303.44 per share as fair value. Panera had prepaid the deal price of $315.00 per share to the Petitioners without having secured a clawback provision if the price the Court determined as fair value was less than what the Company paid. In an issue of first impression, the Court held that Panera was not entitled to a refund under the appraisal statute for the excess $11.56 per share that Panera paid to the Petitioners. Specifically, it noted that, although the appraisal statute allows a corporation to lessen the amount of interest that accrues during the pendency of litigation by prepaying stockholders an amount of cash, the specific words of the statute do not provide for recourse if the corporation overpays its stockholders without having negotiated a clawback provision.