Delaware Chancery Court Appraises Clearwire Corp. Over 50% Below Merger Price

On July 21, 2017, the Chancery Court (VC Laster) issued its ruling in Sprint v. Clearwire, appraising the fair value of Clearwire Corp. stock at nearly 60 percent below the Sprint Nextel Corp.’s buyout price of $5.00 per share. VC Laster found the fair value of Clearwire stock to be $2.13 per share, almost eight times lower than Aurelius Capital Management LP’s valuation of over $16 per share. In his analysis, VC Laster did not consider the deal price at all because neither side argued it was the fair value. VC Laster’s analysis also did not consider synergies, since the Court is by statute not allowed to consider deal-specific factors. The Court adopted Sprint’s analysis in total, stating that Aurelius “did not prove its more aggressive valuation contentions.”

Sprint had originally agreed to pay $2.97 per share for the Clearwire stock it did not already own, but that deal fell through after Dish made a competing bid for the company at $4.40 per share. Interestingly, in a separate part of its opinion analyzing whether the merger met the entire fairness standard, the Court stated in dicta that, because of several flaws in the sale process, the $2.97 deal would not have been entirely fair. It found that the $5.00 price overcame these process flaws and, therefore, the final merger was entirely fair. It then went on to consider the appraisal claim. Thus, the decision indicates that $2.97, while perhaps in a range of fair value, would have been rejected as not a fair enough price had it been the final deal. Nevertheless, under the slightly different appraisal analysis requiring a determination of a specific fair value, the Court found that value to be not only below the merger price of $5.00 but even below $2.97.

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