Delaware’s First Appraisal Decision Post-Dell Reflects Potential Narrowing of Remedy
By K. Tyler O’Connell, Morris James LLP
Delaware’s appraisal statute permits dissenting stockholders of an acquired corporation to petition the Delaware Court of Chancery for the “fair value” of their shares. As previously reported, the Delaware Supreme Court’s recent decisions in DFC Global Corp. v. Muirfield Value Partners, L.P., 172 A.3d 346 (Aug. 1, 2017) and Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., __ A.3d __, 2017 WL 6375829 (Dec. 14, 2017) endorsed the view that, under the efficient capital markets hypothesis, deference normally should be afforded to the acquisition price for a public company resulting from a sale process free of material conflicts. The Dell decision accordingly reversed and remanded the Court of Chancery’s decision to award “fair value” significantly above the deal price based on a discounted cash flow analysis.
In the Court of Chancery’s first post-Dell appraisal decision, Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 2018 WL 922139 (Del. Ch. Feb. 15, 2018), the Court of Chancery considered the Delaware Supreme Court’s guidance and, accordingly, relied upon the deal price as a proxy for fair value, but also reasoned that the price in a sale to a strategic acquirer (as opposed to a financial buyer) would reflect anticipated synergies in addition to the value of the acquired corporation. While the Court of Chancery attempted to quantify the synergies that should be subtracted, it concluded that use of the unaffected average per-share trading price prior to the announcement of the transaction was more consonant with the Delaware Supreme Court’s recent guidance. It accordingly awarded fair value at less than the deal price—and the fair value advocated by the respondent’s expert. The appraisal petitioners recently moved for reargument, and also noted they intend to appeal.
Developments in this and subsequent cases will inform whether the Delaware Supreme Court’s recent decisions result in downward pressure on fair value awards to former stockholders of public companies.
Delaware Supreme Court Revives M&A Challenge Due to Nondisclosure of Director Opposition to Merger Transaction
By K. Tyler O’Connell, Morris James LLP
In Appel v. Berkman, __ A.3d __, 2018 WL 947893 (Del. Feb. 20, 2018), the Delaware Supreme Court held that the failure to disclose in a proxy statement why a corporation’s founder and board chairman abstained from a vote approving a merger required reversal of a decision dismissing fiduciary duty claims against the defendant-directors.
In Appel, the proxy statement accurately disclosed that the chairman abstained from voting, while the other directors voted in favor. It also accurately disclosed that the chairman had not decided whether to tender his shares for the merger consideration. Prior to the closing of the transaction, however, the stockholder-plaintiff requested books and records from the corporation pursuant to 8 Del. C. § 220. The resulting document production included board minutes stating that the chairman was disappointed with the transaction price and with the company’s management for not having run the business in a manner that would command a higher price, and that in his view it was not the right time to sell the company. His views in this regard were not disclosed in the proxy statement.
The Delaware Supreme Court reasoned that the proxy statement listing “all the many reasons the directors voted in favor of the transaction” should have disclosed the chairman’s contrary view. While the court made clear it was not endorsing a per se rule requiring disclosure of dissenting directors’ views, disclosure was required here to ensure that the total mix of information was materially accurate. Due to the disclosure violation, the director-defendants could not rely upon the so-called Corwin doctrine, under which approval by a fully informed majority of stockholders would render the directors’ decisions subject to the protections of the business judgment rule, regardless of whether they complied with their duty to act reasonably to maximize value in a sale of control. See Corwin v. KKR Fin. Holdings LLC, 125 A.2d 304 (Del. 2015). Accordingly, the Delaware Supreme Court reversed and remanded the action to the Delaware Court of Chancery.