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.
In 2016, Newell Rubbermaid, Inc. (“Newell”) acquired Jarden Corporation (“Jarden”). The merger consideration was $59.21 per share, as a mix of cash and Newell stock. Stockholders petitioned for appraisal, and their expert witness opined that Jarden’s fair value was $71.35 per share. Jarden offered an expert who opined the per-share fair value was $48.01. The Court’s post-trial determination was a fair value of $48.31 per share.
The Court gave substantial weight to the market evidence of Jarden’s stock price, given that Jarden had no controlling stockholder, its public float was 93.9 percent, it was well covered by stock analysts, its stock was heavily traded, and it enjoyed a narrow bid-ask spread. The Court specifically found that the trading price was not “stale” as of the merger date and that the market had all material information. The Court also noted contemporaneous internal valuations of the Jarden’s stock made for business purposes, including particularly a $49 per-share equity offering shortly before the merger. Indeed, after Jarden’s stock price then fell, Jarden announced it would purchase up to $50 million in shares from the public at the same $49 per share price. The Court did find troubling certain procedural aspects of the transaction, including that Jarden engaged in a single-bidder strategy with no post-signing market check, and that its lead negotiator acted with little to no oversight by the Jarden board and gave early indications of an acceptable price that may have acted as a “ceiling” on negotiations. In light of this and the fact that the evidence regarding what portion of synergies was included in the deal price was “in equipoise,” and it was difficult to determine this as a general matter in a stock-for-stock merger, the Court placed little weight on the deal price less synergies. Finding Jarden to have no reliable comparable companies, the Court gave no weight to petitioners’ primary valuation method. The Court also rejected aspects of both sides’ discounted cash flow analyses; adopting its own modified model, the Court calculated a per-share DCF value of $48.13 per share.
In addition to providing another example calculating “fair value” to be below the merger price, the Court’s Jarden opinion presents evidentiary guidance for corporate litigators. In footnote 12, Vice Chancellor Slights directs that parties submit into evidence valuation texts or articles addressing valuation methodologies on which parties wish to rely, because “a text or scholarly article addressing economic or valuation principles contains factual matter, the admissibility of which must be tested under Delaware’s Uniform Rules of Evidence.” The Vice Chancellor also noted in footnote 12 that he sees no value in parties referring to factual findings from other Delaware courts’ use of various methodologies to calculate the fair value of other companies, given the Court’s statutory mandate to determine the fair value of the company before it.Share