Delaware Chancery Court Decisions Calculate Value in Appraisal Claims as Close to Deal Price

The Delaware Court of Chancery issued two appraisal decisions in the context of arm’s-length mergers. In Blueblade Capital Opportunities LLC v. Norcraft Companies, Inc. (July 27, 2018), Fortune Brands Home & Security, Inc. acquired Norcraft, and Norcraft shareholders sued, seeking a judicial determination of the fair value of their shares at the effective date of the deal. The court considered using the deal-price-less-synergies formula to calculate the fair value of Norcraft as of the merger date, but found that calculation to be an unreliable indicator of fair value. The court reasoned that an examination of the deal process “reveal[ed] significant flaws” and instead used a DCF analysis to calculate the fair value to be about 2.5 percent above the deal price. In In re Appraisal of Solera Holdings, Inc. (July 30, 2018), Vista Equity Partners acquired Solera, and seven funds that held shares of Solera common stock sought appraisal. The court did not consider the deal price to be seriously flawed and used the deal-price-less-synergies formula to calculate the fair value to be just below the deal price. The court reasoned that, “although not perfect,” the deal process was sufficiently reliable. The court also commented on the reliability of the deal price in In re Appraisal of AOL Inc. (August 15, 2018). On reargument, Vice Chancellor Sam Glasscock III reduced AOL’s post-merger appraisal value after an examination of the DCF analysis he previously used to find fair market value. Finding that he improperly calculated the accretive value of two of AOL’s pending transactions in his analysis, Glasscock revised the fair value of an AOL share on the merger date from $48.07 to $47.08. He further stated that “[n]o DCF analysis, used to calculate the ‘exact’ value of a corporation can be sufficiently rigorous that it will not permit a good faith argument that the value should be otherwise. This, I think, substantiates the wisdom of reliance on the deal price, where appropriate.”