By: Mark J. Tarallo
In two recent cases, the Delaware Chancery Court rejected the idea that the merger price in an arm’s- length transaction always represents fair value. In Appraisal of Dell, Inc. (May 31, 2016) and Appraisal of DFC Global Corp. (July 8, 2016), the Chancery Court carved out exceptions to the long-standing doctrine that the merger price that a third party was willing to pay represented “fair value”, for purposes of Chapter 262 of the Delaware General Corporate Law. In both cases, the Chancery Court found that there were specific, enumerated factors that made the merger price inadequate as a measure of fair value, despite the fact that the seller in both cases ran an aggressive and thorough sales process.
As the Chancery Court noted in Dell:
“In this case, the Company’s process easily would sail through if reviewed under enhanced scrutiny. The Committee and its advisors did many praiseworthy things, and it would burden an already long opinion to catalog them. In a liability proceeding, this court could not hold that the directors breached their fiduciary duties or that there could be any basis for liability. But that is not the same as proving that the deal price provides the best evidence of the Company’s fair value.”
Similarly, in DFC, the Chancery Court stated:
“Although this Court frequently defers to a transaction price that was the product of an arm’s-length process and a robust bidding environment, that price is reliable only when the market conditions leading to the transaction are conducive to achieving a fair price.”
The full text of each opinion is linked above, and they are worth reviewing to analyze the factors that the Vice Chancellors considered when rendering their opinions. While the best defense against “fair value” claims remains a full and robust sales process, it is important to consider the factors cited by the Vice Chancellors that may lead to a different result if a post-sale appraisal claim is made.
For more information, please contact corporate attorney Mark J. Tarallo.