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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 82 posts in Appraisal.
Chancery Appraisal Decision Illustrates the Importance of Reliable Expert Testimony and Witness Credibility to Fair Value Determinations
Even when its role is to determine the fair value of shares in an appraisal proceeding, credibility matters to the Court of Chancery. Following a three-party business combination, Petitioners (former minority stockholders) exercised appraisal rights under 8 Del. C. § 262. Petitioners and Respondent agreed to use a discounted cash flow analysis to determine the fair value because there was insufficient market-based evidence of fair market value. But the parties’ experts disagreed on the input values and results of the DCF analysis, leaving the Court to “grappl[e] with expert-generated valuation conclusions that [were] solar systems apart.” Mem. Op. 2.
After a lengthy comparison of the competing DCF analyses, the Court concluded that Petitioners’ calculation (with minor adjustments) represented fair value. By contrast, Respondent’s position suffered from significant credibility issues. One of the executives involved in the business combination transactions requested a backdated valuation, misrepresented the date of the valuation in discovery responses, and continued with its misrepresentation until the eve of trial. The Court also found Respondent’s expert was not credible because elements of his valuation approach were bespoke, were not used in the industry, and relied heavily on the ipse dixit of the expert. Complicating things further, Respondent disagreed with its own expert’s calculations and conclusions. These factors, combined with the superior DCF analysis by Petitioner’s expert, led the Court to accept Petitioner’s fair value calculation with only minor adjustments.
Appraisal of Panera Bread: Court of Chancery Again Defers to Deal Price, Denies Request for a Refund of the Amount of Synergies
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. More ›
In Manti Holdings, LLC v. Authentix Acquisition Co., Inc., the Court of Chancery held that a contract provision limiting or waiving future appraisal rights may be enforceable as a matter of law. The Court had previously ruled that the petitioner stockholders had waived their right to an appraisal in a stockholders agreement. On re-argument, the Court was asked to determine whether the petitioners could, as a matter of law under the Delaware General Corporation Law (“DGCL”), waive their appraisal rights. Because Section 262 of the DGCL confers a statutory right to appraisal upon shareholders, the petitioners argued that the provision of the stockholders agreement purporting to waive appraisal rights was not enforceable. Relying upon its prior precedent concerning waiver of statutory rights, the Court explained that a contractual relinquishment of appraisal rights was permissible when the contract language is clear and unambiguous and the record reflects that the petitioners were sophisticated investors who were fully informed and represented by counsel when they signed the stockholders agreement.
Chancery Explains When Deal Price is a Persuasive Indicator of Fair Value in an Appraisal Proceeding
Recent Delaware Supreme Court decisions on appraisal proceedings have stressed the pivotal importance of the deal price in establishing fair value. In this case, the Court of Chancery faced an appraisal for a transaction in which the company’s General Counsel expressed ongoing concerns about the CEO’s potential conflict in spearheading the sale process. That gave rise to the question: In measuring fair value, what weight should be accorded to the deal price when there is some “hint of self-interest” that may have compromised the market check? More ›
Chancery Determines Appraisal “Fair Value” Below Merger Consideration, Questions Judicial Notice of Valuation Scholarship
This decision presents another cautionary tale for stockholders of a target public company who consider seeking statutory appraisal instead of accepting the merger consideration. More ›
CCLD Holds that D&O Policy’s Duty to Defend “Securities Claims” Extends to Appraisal Proceedings under 8 Del. C. § 262
CCLD Holds that D&O Policy’s Duty to Defend “Securities Claims” Extends to Appraisal Proceedings under 8 Del. C. § 262, that Pre-Judgment Interest on an Appraisal Award May be a Covered “Loss” and that a Breach of Consent-to-Defense Clause does not Bar Coverage Absent Prejudice to Insurer
The Complex Commercial Litigation Division of Delaware’s Superior Court has become a leading venue for complex insurance coverage disputes. This decision addresses D&O insurers’ denial of coverage for over $13 million spent defending an appraisal proceeding under 8 Del. C. § 262, as well as $38.4 million in pre-judgment interest on the appraisal award. More ›
Lately, the Delaware Supreme Court has given great weight to the deal price in appraisal cases. As a result, plaintiffs have put a greater focus on showing that the process leading to the merger makes that price unreliable, potentially because of breaches of fiduciary duty. One strategy for recovery is to file a breach of fiduciary case after obtaining valuable discovery in the appraisal case. This decision explains when such a fiduciary duty case can go forward notwithstanding the appraisal proceeding seeking to recover for the same loss. More ›
This decision upholds a contractual waiver of appraisal rights entered into at the time the investment was made. That is not new. However, what is important is the focus on the type of transactions that triggered the waiver, with a merger doing so but a stock sale not waiving the right to be carried along. Thus, the terms of the deal once again are critical.
Appraisal cases often must deal with whether to admit evidence that deals with post-merger events. The argument is that those events show whether the predictions of future earnings are accurate measures of value. This decision deals with post-signing evidence but is nonetheless instructive of the Court’s general willingness to give such evidence the weight it deserves all things considered.
Appraisal litigation is unique under Delaware law. In almost every instance you can think of, once an event provides a right to recover damages (such as a fire caused by negligence), what happens later is relevant to determining the amount of damages. For example, the actual future earnings of a business is relevant to a claim for lost profits. But, that is not always so in an appraisal case. There the valuation of the company involved is determined as of “the point just before the merger transaction ‘on the date of the merger,’” see Merion Capital v. Lender Processing Services, (Del. Ch. Dec. 16, 2016). More ›
Court of Chancery Addresses Confidentiality in Appraisal Context and Use of Discovery to Identify New Claims
It is common and accepted practice for parties in Court of Chancery litigation to enter into a stipulated order governing the inevitable exchange of commercially-sensitive information during the discovery process. Those orders spell out how such information may or may not be disclosed, including in court filings, while adopting the standards and procedures reflected in the Court of Chancery rule on the topic, Rule 5.1. More ›
This appraisal decision can be added to long list of decisions finding the deal price is the “best evidence” of the subject company’s fair value. That list should continue to grow since the Delaware Supreme Court heavily endorsed applying market efficiency principles in appraisal actions twice over the past year, in Dell and DFC. Important to Court’s finding here was an adequate deal process. More ›
This is an important appraisal decision because it examines, post-Dell and DFC, when the market price and deal price of the stock being appraised may not represent fair value. That might occur when, as here, there is a lack of evidence supporting the market’s efficiency for the subject corporation and the deal has process flaws. In such a scenario, the traditional valuation methodology of a discounted cash flow analysis—a battle of the experts—is likely to control. The deal price, however, still has value as a reality check on this analysis. The decision also is noteworthy for the petitioner’s use of expert testimony to show the flaws in the post-announcement market check. More ›
Court Of Chancery Holds That Dr. Pepper And Keurig Reverse Triangular Merger Does Not Trigger Appraisal Rights
In a reverse triangular merger, a parent company uses a subsidiary to acquire a target, with that subsidiary then being absorbed by the target. That is how the Dr. Pepper and Keurig companies structured their deal. Dr. Pepper would be the resulting parent company, with Dr. Pepper’s stockholders gaining cash but retaining their stock, and with Keurig’s stockholders gaining a controlling interest in Dr. Pepper. Certain Dr. Pepper stockholders sued claiming that they had appraisal rights to a judicially-determined fair value in connection with the transaction under Section 262 of the DGCL, which were being violated. More ›
This opinion arises out of the appraisal proceeding relating to Hewlett-Packard’s purchase of Aruba Networks. The case led to two notable opinions, so far. More ›