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High Court Affirms Deal Price Was Reliable Indicator of Fair Value Despite Flawed Process

Brigade Leveraged Capital Structures Fund Ltd. v. Stillwater Mining Co., C.A. No. 427, 2019 (Del. Oct. 12, 2020)

This case illustrates that, notwithstanding a flawed process for the sale of a company, the deal price may still provide a reliable indicator of the fair value of shares in an appraisal action. Petitioners had contended that the Court of Chancery abused its discretion in upholding a rushed sale process and in failing to make an upward adjustment to the deal price based on an increase in the company’s value post-signing.

In rejecting the Petitioners’ appeal, the Supreme Court found that the record contained objective indicia that supported the Court of Chancery’s valuation, including: (1) “the Merger was an arm’s length transaction with a third party”; (2) “the Board did not labor under any conflicts of interest”; (3) the buyer “conducted due diligence and received confidential information about Stillwater’s value”; (4) Stillwater “negotiated . . . multiple price increases”; and (5) “no bidders emerged during the post-signing phase.” The Court also reasoned that early process flaws caused by a CEO/director’s personal liquidity needs did not undermine confidence in the deal price, because his focus seemed to be on maximizing value. 

The Supreme Court also held that the Court of Chancery did not abuse its discretion in rejecting Petitioners’ conclusory arguments in support of a purchase price adjustment, based on a rise in the value of the company post-signing and pre-closing, due to a failure to meet their burden of proof. 

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