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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 70 posts in Appraisal.
Court Of Chancery Appraises Company Below Deal Price
In re Appraisal of SWS Group Inc., C.A. 10554-VCG (May 30, 2017)
Recent criticism of appraisal arbitrage argues that it comes without real risk to the petitioners. This appraisal decision, which values the company below the deal price based on a discounted cash flow analysis, should be part of any reform discussion. The petitioners in SWS Group suffered a sizable loss after refusing to accept the deal price. SWS Group also comes right on the heels of the PetSmart decision, which found the deal price represented the company’s fair value. Hence, petitioners again lost, given all the expense involved in an appraisal proceeding. In short, appraisal litigation is not for the weak at heart. The key to this decision is the Court’s finding that synergies for the buyer drove the merger price past fair value. Of course, while based on precedent, a finding of synergies is always controversial. To petitioners, those possible benefits are what made the company worth buying and are thus part of its inherent appeal.
ShareCourt Of Chancery Explains Limits On Stockholder Challenges To Short-Form Mergers
In Re United Capital Corp. Stockholders Litigation, C.A. 11619-VCMR (January 4, 2017)
It is well understood that minority stockholders have limited rights to object to a short-form merger under Delaware law. This decision affirms that minority stockholders cannot challenge the merger on fairness grounds alone, but must seek appraisal as the remedy for an inadequate price. However, since the stockholders are faced with the decision of whether to accept the deal price or seek appraisal, the duty of disclosure still applies. This decision is helpful for its in-depth analysis of the many disclosure allegations.
ShareCourt Of Chancery Upholds Merger Price As Fair Value In Appraisal Action
Merion Capital L.P. v. Lender Processing Services Inc., C.A. 9320-VCP (December 16, 2016)
This is another decision in the continuing development of Delaware law on how to determine the acquired company’s fair value in an appraisal action. The decision carefully reviews the more recent opinions on whether the merger price constitutes fair value, concluding that, in this case, it did. Factors considered in weighing the use of the merger price included: meaningful competition during the pre-signing phase, that adequate and reliable information was provided to all parties during the pre-signing phase, and the lack of collusion or unjustified favoritism towards particular bidders. In addition, because fair value is determined at closing, evidence from the post-signing period may also be relevant, such as the absence of a topping bid, and the company’s post-signing performance. The decision is also useful for seeing how the Court will work carefully through the parties’ competing expert reports.
ShareCourt Of Chancery Appoints Lead Counsel In Appraisal Case
Sunrise Partners Limited Partnership v. Rouse Properties Inc., C.A. 12609-VCS (December 8, 2016)
Appraisal petitioners normally agree to consolidate their actions, on which law firm(s) will represent them, and on how their common objectives will be carried out. That did not happen in this case: the petitioners disputed whose attorneys should take the lead counsel role. Significantly, the Court found it had the authority to choose one of the two competing law firms to lead on behalf of all petitioners despite one petitioner’s objection. The Court also observed, however, that there may be instances in which each petitioner should be allowed to chart its own course without consolidation or coordination.
ShareCourt Of Chancery Explains Fee Award In Appraisal Case
In Re Appraisal Of Dell Inc., C.A. 9322-VCL (October 17, 2016)
Plaintiffs’ attorneys in representative litigation may obtain awards of fees and expenses when their efforts prove successful and provide benefits to the represented class. This decision explains how the Court of Chancery will calculate a fee award in an appraisal case based on the benefit conferred to the dissenting stockholders; here, a $21 million bump in the consideration. The decision addresses several important issues, including when expenses should be deducted from the benefit conferred before calculating the fees. Indicative of this litigation’s complexity, the expert witness fees alone were over $3.3 million. The decision will serve as a useful guide to any future fee awards in the growing field of appraisal cases.
ShareCourt Of Chancery Explains Difficult Valuation Techniques
In Re Appraisal Of DFC Global Corp., Consol. C.A. 10107-CB (July 8, 2016)
This decision deals with the always difficult world of what beta to use in a DCF valuation. The Court’s analysis is an exhaustive review of the alternative approaches and is particularly helpful in valuing a publicly traded company in some financial turmoil.
ShareCourt Of Chancery Explains When Merger Price Not Is The Appraised Value
In Re: Appraisal of Dell Inc., C.A. 9322-VCL (May 31, 2016)
This decision explains when a price in a management lead buy out that is close to a merger price set after a shopping of a company may still not be the “fair value” required by Delaware appraisal law. Thus, it is a good review of the more-recent decisions that have accepted a merger price as fair value when that price was the product of a competitive process. In short, the facts really matter and management lead buy outs will have a hard time doing almost any deal that will be adequate to establish an appraisal value.
ShareCourt Of Chancery Resolves Appraisal Voting Requirement
In re Appraisal of Dell Inc., C.A. 9322-VCL (May 11, 2106)
It is well understood that to be entitled to the appraisal of your stock you need to not vote for the merger. However, in the complex world of how shares are held by beneficiaries and depositories, it is easy to overlook the importance of this requirement. This decision provides an excellent review of how shares are held and actually voted and reveals how it is now possible in many instances to determine how a beneficial owner’s stock was actually voted. The petitioners thought they had instructed the record holder to object to the merger. They were wrong. An intermediary failed to have the vote cast against the merger due to a communication error. The result was that the Court denied the petitioners' appraisal rights.
ShareCourt Of Chancery Accepts Merger Price In Appraisal Action
Merion Capital LP v. BMC Software Inc., C.A. 8900-VCG (October 21, 2015)
This decision illustrates the dangers of appraisal arbitration. More ›
ShareCourt Of Chancery Permits Partial Settlement Of Appraisal Case
Mannix v. Plasmanet, Inc., C.A. No. 10502-CB (July 21, 2015)
This decision permits non-appearing dissenters to settle their appraisal claims over the objection of the appraisal petitioner. This right is limited, however, to the non-appearing former stockholders and should not be read as permitting appearing stockholders to settle out.
ShareCourt of Chancery Dismisses Appraisal Case For Violation Of The Continuous Ownership Rule
In re Appraisal Of Dell Inc., C.A. No. 9322-VCL (July 13, 2015)
To obtain appraisal rights following a merger a stockholder needs to continuously hold her stock through the merger date. But as this decision holds (and is almost certain to be appealed as the Court has itself invited), losing technical record title to the stock before the merger is complete also loses the right to an appraisal. Hence, great caution is needed by those who seek appraisal to be sure their stock is not retitled by their nominee.
ShareCourt Of Chancery Rejects Management Projections In An Appraisal
LongPath Capital LLC v. Ramtron International Corp. C.A. No. 8094-VCP (June 30, 2015)
This decision turns on rejecting the projections of management about the future cash flow of the company to be appraised. More ›
ShareCourt 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.
ShareCourt 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.
ShareCourt 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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