Delaware Supreme Court Sanctions Use of Deal Price for Appraisal

On December 14, 2017, in Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., the Delaware Supreme Court rejected the Delaware Court of Chancery’s conclusion that the deal price was not a useful metric for determining “fair value” under Delaware’s appraisal statute. The Court suggested that deal price – assuming a reasonable sale process – merits substantial, and perhaps dispositive, weight. More details on this case are available in S&C’s client memo.

  • However, in its first major post-Dell *decision *Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., on February 15, 2018, the Delaware Court of Chancery found that target Aruba’s fair value was best represented by its unaffected market price before news of the deal leaked, which was 30% less than the deal price. After finding that an efficient market existed for Aruba’s stock, the Court concluded that the 30-day average unaffected market price was “more straightforward and reliable” evidence of fair value as a going concern than the deal price, because backing out synergies and agency costs was “messy” and provided ample opportunities for error. In addition, the Court took issue with both parties’ DCF analyses and rejected the method altogether, citing the lack of evidence that the market price was unreliable or unavailable – departing from the usual Delaware approach to consider DCF analysis as probative evidence of fair value even where the market is found to be efficient. More details on this case are available in S&C’s recent client memo.

  • Shortly after Verition Partners, on February 23, 2018, in In re Appraisal of AOL Inc., the Delaware Court of Chancery chose not to rely on deal price in determining fair value, finding that the AOL sale process was not “Dell Compliant”: sufficiently “unhindered, informed, and competitive.” The Court also did not choose AOL’s unaffected market price as the best evidence of fair value as the Court did in Verition Partners, because neither party had argued that the market price was determinative or presented evidence as to the efficiency of the market for AOL’s shares. Instead, the Court examined the DCF analysis presented by AOL of $44.85 per share, adjusted it upward to account for some analytical decisions made by AOL’s expert with which the Court did not agree, and concluded that the fair value of AOL at the time of the merger was $48.70 – $1.30 per share less than the deal price of $50. More details on this case are available in S&C’s recent client memo.