Posts tagged Appraisal

Court Of Chancery Affirms Entitlement To Interest

Huff Fund Investment Partnership v CKx, Inc., C.A. 6844-VCG (February 12, 2014)

Appraisal actions are increasing for several reasons.  One reason is that the statutory rate of interest of 5% plus the federal discount rate paid to the stockholder is higher than that currently available elsewhere.  Here the defendant offered to pay into court what it said was the fair value and thereby stop the accrual of interest.  However, the Court held that the appraisal statute mandated interest be paid until the Court's judgment was paid.

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Court Of Chancery Adopts Merger Price In Appraisal Case

Huff Fund Investment Partnership v. CKx Inc., C.A. 6844-VCG (November 1, 2013)

In this appraisal case, the Court rejected the usual DCF analysis as unreliable and instead adopted the merger price as the fair value. The facts are a bit unusual.  The merger was the result of a real marketing of the company.

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Court Of Chancery Values Small Cap Company

Merion Capital LP v. 3M Cogent, Inc., C.A. 6247-VCP (July 8, 2013)

This is another in the series of recent appraisal cases.  As usual, the opinion reflects a careful analysis of the traditional methods used to value a company in an appraisal proceeding.

Particularly noteworthy is the Court's continued insistence that the expert's opinions be supported by a full explanation and that conclusions should be grounded in practices recognized by valuation literature.  This translates into the point that these appraisal cases are not for novices and demand familiarity with the financial literature and processes involved.

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Court Of Chancery Values Radio Company

Towerview LLC V. Cox Radio Inc., C.A. 4809-VCP (June 28, 2013)

This appraisal case is a good example of the Court's thinking processes in establishing value.  The close focus on the particular industry involved, the consideration of economic trends and the reliance on valuation theory are all typical in appraisal cases. Also interesting is the Court's willingness to really dig into the reasons for any expert's opinion. The experts had better fully explain why they reached any particular opinion or bear the risk that the Court will not accept it.

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Court Of Chancery Agrees To Consider Post Merger Evidence

In re Rural Metro Corporation Shareholders Litigation, C.A. No. 6350-VCL (April 16, 2013)

The Delaware appraisal statute is generally interpreted to preclude consideration of post-merger events in determining the fair value of the company.  However, in this transcript ruling, the Court indicated that it would consider such evidence when: (1) it sheds light on what the parties were thinking at the time of the merger (such as on revenue projections) and (2) it helps prevent a true outlier (such as wildly wrong revenue projections).  The Court cautioned that it might not give much weight to this evidence and it remains to be seen how far this transcript will go to permit other post-merger evidence.

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Court Of Chancery Limits Revisions To An Expert's report

IQ Holdings Inc. v. American Commercial Lines Inc.,  C.A. 6369-VCL (August 30, 2012)

When may an expert change his mind after he has provided his report under a court-ordered deadline?  This decision answers that question.  Briefly, absent agreement between all the parties, once the report is served, it may not be materially changed.  Of course, this just makes common sense if scheduling orders are to have any force.

What the expert is then to do when he realizes he has erred is a tough question.  Confession is said to be good for the soul and that probably applies here as well.  But the opposing party needs to be cautious as well, for nothing in this ruling bars a surprise during cross examination of its expert, who absent a correction by the opposing expert, may not be as prepared as he might have been with that disclosure.

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Court Of Chancery Allocates Value For Preferred Stcok

In Re: Appraisal Of The Orchard Enterprises Inc., C.A. 5713-CS (July 18, 2012)

One of the more difficult issues in appraisal litigation is how to allocate value between common and preferred stock.  Here the preferred stock was entitled to dividends on an as-converted basis and the Court used that forrmula to allocate the enterprise's value between the preferred and common stock.

The decision is also a primer on how to do a discounted cash flow valuation.

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Court Of Chancery Values Smaller Company

Gearreald v. Just Care Inc., C.A. 5233-VCP (April 30, 2012)

This is an interesting appraisal case because it explains the issues dealing with valuing a smaller company.  As they are riskier, for example, a small company risk premium is proper in determining what its cost of capital should be.

 

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Court Of Chancery Rejects Appraisal Claim

Krieger v. Wesco Financial Corp., C.A.6176-VCP (October 13, 2011)

Some corporate mergers give stockholders of the acquired company an option to take cash or the stock of the acquiror.  If the stockholder fails to chose, then she typically gets the cash.  The appraisal statute only provides for an appraisal claim when the stockholder is required to take cash and not publicly traded stock.  Here the plaintiff who had not made the election to take stock and so got cash argued she was forced to take cash and hence was entitled to appraisal of her shares.

The Court said "no," reasoning that so long as she had a choice she was not forced to take the cash.  Risking the wrath of some members of Congress, the Court cited to a famous French philosopher on why you still have a choice even when you do not decide to act.  That too is your choice.

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Court Of Chancery Explains Valuation Technique Preferences

S. Muoio & Co. v. Hallmark Entertainment Investments Co., C.A. 4729-CC (March 9, 2011)

There are several different ways to value an enterprise.  For a while, discounted cash flow seemed to be the courts' preference.  Then when the markets were thought to be "efficient," market values were given weight.  This opinion is a good example of the current state of flux where the Court is inclined to take into account all approaches, test to see if there are any outliers, look at the business realities involved and thoroughly analyze the parties' contentions before reaching a determination.  In short, it no longer is as simple as it once was and the new business world we live in seems to warrant  that approach.

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Court Of Chancery Explains When Fair Is What You Get

Reis v. Hazelett Strip-Casting Corporation, C.A. 3552-VCL (January 21, 2011)

When a reverse stock split eliminates minority stockholders, they are entitled to be paid the "fair value" of their stock. This decision explains what that means.  In particular, it does not mean they get the same value as if their stock were subject to an appraisal.  While the valuation process is very similar, it is affected by the standard of review involved, particularly if the squeeze out was done unfairly and the intrinsic fairness standard applies.

The opinion is also an excellent review of the overall Delaware law on the standard of review for any transaction.

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Supreme Court Refuses To Adopt Deal Price As Conclusive

Golden Telecom, Inc. v. Global GT LP, C.A. No. 392, 2010 (December 29, 2010)

In the last few years, the Court of Chancery has sometimes expressed confidence that the deal price set after a solid market check and proper deal negotiations may be the "fair value" to be paid to dissenters in a statutory appraisal proceeding.  Here the Delaware Supreme Court firmly rejects that notion and requires the trial court to independently go through the predicable war of the experts and decide what is fair value.  While this result seems dictated by the Delaware statute, the "Great Recession" has no doubt had an impact as well.

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Court of Chancery Upholds Right To Change Your Mind

Roam-Tel Partners v. AT&T Mobility Wireless Operations Holdings Inc., C.A. 5745-VCS (December 17, 2010)

This decision holds that a stockholder who surenders his shares and is sent a check for the merger consideration may still demand appraisal if he returns the check and makes his demand in time.  Thus, he can change his mind if he does it fast enough.

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Court of Chancery Explains Valuation Principles

Berger v. Pubco Corp., C.A. 3414-CC (May 10, 2010)

This decision explains 2 points of appraisal law.  First, when the discounted cash flow approach is used to value a company, no control premium is added to the result.  That sort of premium is only used when the valuation is based on comparable market prices or "comps" that reflect the minority discount inherent in the price of a small block of stock.

Second, at least in this case, there is no deduction for the capital gain tax due on the sale of assets by a holding company.  Instead, those assets are valued on a pre-tax basis.

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Court Of Chancery Rejects Market In Appraisal Determination

Global GT LP v. Golden Telecom Inc., C.A. 3698 (April 23, 2010)

This is an interesting appraisal decision for 2 reasons.  First, the Court declined to use the price set in the market as a strong indicator of value notwithstanding recent decisions in Delaware that had been inclined to do so. The Court was not satisfied that in the case of this company with its dominant stockholders announcing that they would only support the deal on the table that there was a real market check.

Second, the Court's analysis of how to do a discounted cash flow valuation again illustrates its preference for expert opinion based on a knowledge of the industry involved.

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