Chancery Again Defers to Deal Price in Appraisal
In re Appraisal of Columbia Pipeline Group, Inc., Cons. C.A. Nos. 12736-VCL (Del. Ch. Aug. 12, 2019).
In Columbia Pipeline Group, the Court of Chancery applied the appraisal precepts established by the recent appellate precedent in DFC, Dell and Aruba to conclude that the deal price was a persuasive indicator of fair value. After framing the current state of appraisal law and thoroughly examining the sales process, the Court found that the merger was the result of an arms-length transaction with a third party, and contained sufficient indicia of a fair process to conclude that the deal price was a reliable indicator of fair value. In support of its finding that the sales process was fair, the Court also pointed to the lack of conflicts at the board level, the acquiring company’s due diligence, and that the target company contacted other potential buyers that all failed to pursue a merger. Additionally, the Court found that the target company extracted multiple price increases during the deal-negotiation process, and that no other bidders emerged during the post-signing phase, which is a factor that the Supreme Court emphasized in analyzing the fairness of the deal process in Aruba.
The Court rejected allegations of a conflict charged against the target’s CEO (who also was a director) and its CFO based on their desire to retire in the near future, among other things because similar circumstances had existed in Aruba and Dell, where these alleged conflicts did not affect the Supreme Court’s reliance on the sale process to support its finding that the deal price was a reliable indicator of fair value. Finally, the Court found that the proxy statement provided to the stockholders contained material misstatements and omissions, and therefore, refused to give any weight to the vote in determining the reliability of the deal price as an indicator of fair value. Although the Court also considered a discounted cash flow analysis presented by petitioners’ expert, due to anticipated large capital expenditures during the projection period, all of the target’s value derived from the terminal period. As a result, differences in inputs like the perpetuity growth rate implied large swings in value. Due to this and the presence of a reliable deal price, the Court did not ascribe weight to petitioners’ DCF.Share