Recent Guidance from the Delaware Court of Chancery – Summer 2013
Published by The Brattle Group, Inc.
The Delaware Court of Chancery (the “Court”) addresses and resolves numerous merger disputes each year. While appraisal rights actions are an available tactic for objecting stockholders, they have typically been utilized less commonly. Dissenting stockholders can petition for an independent “fair value” determination by the Court after rejecting the offered merger deal. Appraisal-rights actions have, however, recently attracted more attention. There are reasons to expect more appraisal rights actions in the future. First, merger values during the financial crisis have been low. Although the Court has suggested that in appraisal-rights actions the stock market price is not a guide to determining the fair value of the subject shares, shareholders are perhaps still likely to perceive an unfair loss and pursue compensation. Second, appraisal-rights actions are becoming more predictable because the Court relies on generally accepted finance principles.
The recent opinions by the Court in Towerview LLC v. Cox Radio, C.A. 4809-VCP (June 28, 2013) and in Merion Capital LP v. 3M Cogent, C.A. 6247-VCP (July 8, 2013) show that the fair value is grounded in a discounted cash flow (DCF) method although other valuation methodologies are considered, such as the comparable transactions or comparable companies method. The Court’s reliance on a DCF to determine the fair value may result in better estimates of the possible outcome than may have been possible in the past.
