Delaware Supreme Court Reverses DFC Global And Clarifies The Deal Price’s Role In Appraisal Litigation
Delaware law has long made clear that the deal price for a company, while relevant, does not necessarily equate to the “fair value” that petitioners are entitled to receive in an appraisal proceeding. A string of recent Court of Chancery decisions, however, adopted the deal price as fair value, reinforcing the view that the market price for an arm’s-length transaction achieved after a thorough sale process likely will be the best evidence of fair value. Two decisions in mid-2016 arguably departed from this line of cases in setting fair value above the deal price, although on different grounds: Dell and DFC Global. Both decisions have been widely-reported, hotly-debated, and appealed.
The first shoe has dropped with this decision in which Delaware Supreme Court reverses the Court of Chancery in DFC Global and clarifies the appropriate role of the deal price in a truly arm’s-length transaction achieved after a well-structured sale process with no self-interest affecting the market check. Hint: There is no presumption in favor of the deal price, but it is the best evidence of fair value under the right circumstances. The decision addresses other issues as well, such as the effect regulatory uncertainty or internal rate of return targets set by the bidder should have on the trial court’s analysis. This is a must-read decision for appraisal practitioners. And now we await further guidance in Dell.