Posts in Appraisal

Court Of Chancery’s Newest Appraisal Precedent

Owen v. Cannon, C.A. 8860-CB (June 17, 2015)

This is the new Chancellor’s first appraisal decision. He adheres to prior precedent’s use of a special tax rate for sub S corporations and the preference for reliance on pre-merger projections.

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Court Of Chancery Again Accepts Merger Price In An Appraisal

Merlin Partners LLP v. Autoinfo Inc., C.A. 8509-VCN (April 30, 2015)

This decision is another in a line of recent appraisal cases where the Court of Chancery has relied on the merger price to set the “fair value” of the stock involved. It does not do so lightly. Rather, the merger price is used when the Court is both convinced that price reflects a fulsome market check without any outside factors affecting that negotiation and when the alternative valuation methods lack real merit. The opinion is also interesting for its discussion of the too-often overlooked issue of whether the merger price was affected by post-merger cost savings for the acquirer. If you make the argument that it was, you need to prove it with some facts.

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Court Of Chancery Limits Drag-Along Rights

Halpin v. Riverstone National Inc., C.A. 9796-VCG (February 26, 2015) Whether drag-along rights can preclude an appraisal action for common stock has not been decided in Delaware.  Here, because the merger was completed before the drag-along rights were asserted, the Court did not have to decide that issue and instead just held the right was asserted too late. Share

Court Of Chancery Adopts Merger Price In Appraisal Proceedings As Fair Value

In Re Appraisal Of Ancestry.com Inc., C.A. 8173-VCG (January 30, 2015) After a complete analysis of the usual issues in an appraisal case involving a DCF valuation, the Court here concluded that the result was close enough to the actual price paid in the merger to warrant adoption of the merger price as fair value. The merger followed an extensive market shop and lengthy negotiations that gave the Court confidence the agreed-to value was fair. Share

Court Of Chancery Clarifies Standing For Appraisal Rights

Merion Capital LP v. BMC Software, Inc., C.A. 8900-VCG (January 5, 2015) and In Re Appraisal Of Ancestry.com Inc., C.A. 8173-VCG (January 5, 2015) both deal with appraisal arbitrage and resolve who is entitled to file an appraisal action. The basic issues these two decisions address is whether a buyer of stock after a merger is announced must prove the stock to be appraised did not vote for the merger. So long as the depository in whose name the  stock is listed did hold more stock than voted for the merger, the Court holds the new buyer need not trace his ownership to specific stock. Of course, the stock sought to be appraised must be less in number than the stock who did not vote for the merger. Share

Court Of Chancery Explains Discovery In Appraisal Case

In Re Appraisal Of Dole Food Company, Inc., C.A. 9079-VCL (December 9, 2014) Appraisal actions are often described as a battle of experts. However, as this decision illustrates, that does not mean that a plaintiff is not subject to discovery, particularly over what he thinks is the value of the company. This is becoming more common as parties buy stock after a merger is announced in an attempt to arbitrage appraisal rights. The liberal rules of discovery apply to all, even the plaintiff who knew nothing until he decided to buy stock. Share

Court Of Chancery Explains Claim For Merger Consideration

Mehta v. Smurfit-Stone Container Corporation, C.A. 6891-VCL (October 20, 2014) This decision explains the rights of a dissenting stockholder who demands appraisal and then withdraws that demand. She is entitled to damages if she does not then receive the merger consideration. Share

Court Of Chancery Grapples With Synergy Issue

Huff Fund Investment Partnership v. CKx Inc., C.A. 6844-VCG (May 19, 2014)

Under Delaware appraisal law, the fair value to be awarded to a stockholder does not include any "synergies" achieved by the merger itself.  What is a "synergy?"  An easy example is when the combined companies may realize some economy of scale because of their combination.  After all, but for that combination, the stockholders in the pre-merged companies would not have been able to obtain that benefit.  The question gets cloudier, however, when considering some post-merger plans the acquirer implements that improve operations. Is it a "synergy" when the old company might have done the same improvement on its own had it thought of it?   This decision grapples with that question. It suggests that the answer lies in whether any post-merger improvement was "on the table" at the time of the merger and was not a new idea thought up only by the acquirer.

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Court Of Chancery Uses DCCF In Appraisal Case

Laidler v. Hesco Bastion Environmental Inc., C.A. 7561-VCG (May 12, 2014)

This decision used the direct capitalization of cash flow method of valuing a closely held company with somewhat erratic cash flows. That is slightly different than the usual DCF method and this decision has a good explanation of how the proof convinces the Court to make various adjustments.

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Court Of Chancery Affirms Entitlement To Interest

Huff Fund Investment Partnership v CKx, Inc., C.A. 6844-VCG (February 12, 2014)

Appraisal actions are increasing for several reasons.  One reason is that the statutory rate of interest of 5% plus the federal discount rate paid to the stockholder is higher than that currently available elsewhere.  Here the defendant offered to pay into court what it said was the fair value and thereby stop the accrual of interest.  However, the Court held that the appraisal statute mandated interest be paid until the Court's judgment was paid.

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Court Of Chancery Adopts Merger Price In Appraisal Case

Huff Fund Investment Partnership v. CKx Inc., C.A. 6844-VCG (November 1, 2013)

In this appraisal case, the Court rejected the usual DCF analysis as unreliable and instead adopted the merger price as the fair value. The facts are a bit unusual.  The merger was the result of a real marketing of the company.

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Court Of Chancery Values Small Cap Company

Merion Capital LP v. 3M Cogent, Inc., C.A. 6247-VCP (July 8, 2013)

This is another in the series of recent appraisal cases.  As usual, the opinion reflects a careful analysis of the traditional methods used to value a company in an appraisal proceeding.

Particularly noteworthy is the Court's continued insistence that the expert's opinions be supported by a full explanation and that conclusions should be grounded in practices recognized by valuation literature.  This translates into the point that these appraisal cases are not for novices and demand familiarity with the financial literature and processes involved.

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Court Of Chancery Values Radio Company

Towerview LLC V. Cox Radio Inc., C.A. 4809-VCP (June 28, 2013)

This appraisal case is a good example of the Court's thinking processes in establishing value.  The close focus on the particular industry involved, the consideration of economic trends and the reliance on valuation theory are all typical in appraisal cases. Also interesting is the Court's willingness to really dig into the reasons for any expert's opinion. The experts had better fully explain why they reached any particular opinion or bear the risk that the Court will not accept it.

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Court Of Chancery Agrees To Consider Post Merger Evidence

In re Rural Metro Corporation Shareholders Litigation, C.A. No. 6350-VCL (April 16, 2013)

The Delaware appraisal statute is generally interpreted to preclude consideration of post-merger events in determining the fair value of the company.  However, in this transcript ruling, the Court indicated that it would consider such evidence when: (1) it sheds light on what the parties were thinking at the time of the merger (such as on revenue projections) and (2) it helps prevent a true outlier (such as wildly wrong revenue projections).  The Court cautioned that it might not give much weight to this evidence and it remains to be seen how far this transcript will go to permit other post-merger evidence.

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Court Of Chancery Limits Revisions To An Expert's report

IQ Holdings Inc. v. American Commercial Lines Inc.,  C.A. 6369-VCL (August 30, 2012)

When may an expert change his mind after he has provided his report under a court-ordered deadline?  This decision answers that question.  Briefly, absent agreement between all the parties, once the report is served, it may not be materially changed.  Of course, this just makes common sense if scheduling orders are to have any force.

What the expert is then to do when he realizes he has erred is a tough question.  Confession is said to be good for the soul and that probably applies here as well.  But the opposing party needs to be cautious as well, for nothing in this ruling bars a surprise during cross examination of its expert, who absent a correction by the opposing expert, may not be as prepared as he might have been with that disclosure.

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