- Cornerstone Research, Appraisal Litigation in Delaware: Trends in Petitions and Opinions 2006–2018 (2019)
The Delaware Court of Chancery, in Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL (Del. Ch. Dec. 19, 2018), has declared “ineffective and invalid” provisions in three corporations’ certificates of incorporation that purported “to require any claim under the Securities Act of 1933 to be brought in federal court” (the “Federal Forum Provisions”).
Ruling on cross-motions for summary judgment, the Court, by Vice Chancellor Laster, ruled that “[t]he constitutive documents of a Delaware corporation cannot bind a plaintiff to a particular forum when the claim does not involve rights or relationships that were established by or under Delaware’s corporate law. In this case, the Federal Forum Provisions attempt to accomplish that feat. They are therefore ineffective and invalid.”
The factual record adequately supports the Court of Chancery’s determination, based on its application of precedent such as In re IBP, Inc. Shareholders Litigation and Hexion Specialty Chemicals, Inc. v. Huntsman Corp., that Akorn had suffered a material adverse effect (“MAE”) under § 6.02(c) of the Merger Agreement that excused any obligation on Fresenius’s part to close. (footnotes omitted)
私は，ニューヨーク大学でWachtell Liptonの弁護士（David A. Katz氏とMark Gordon氏）による企業買収の講義を受講し，そこで幾つかのメモランダムが配られてから，Lipton氏のメモランダムを興味深く拝見してきました。本ブログでも，Lipton氏のメモランダムについて，度々言及しています。しかし，Lipton氏の執筆に係るメモランダムをすべて拝見したということではありませんでした。例えば，1988年11月3日の “The Interco Case” と題するメモランダムは，このPDFを見つけるまで拝見することができませんでした。このメモランダムは，Jeffrey N. Gordon, Corporations, Markets, and Courts, 91 Colum. L. Rev. 1931, 1959 n.95 (1991)，Mark J. Roe, Delaware’s Competition, 117 Harv. L. Rev. 588, 626 (2003)などの論文で引用されています。今回，このメモランダムも含めて，Lipton氏の様々なメモランダムを読むことができるということで，紹介をいたします。デラウェア州会社法の歴史の実務の側面を垣間見ることができました。
We contend that courts should look at the market price of the securities of a target company whose shares are being valued, unadjusted for the news of the merger, rather than at the deal price that was reached by the parties in the transaction.
Unadjusted market price has two distinct advantages over deal price. First, the unadjusted market price automatically subtracts the target firm’s share of the synergy gains and agency cost reductions impounded in the deal price. This is appropriate to do because dissenting shareholders in appraisal proceedings are not entitled to these increments of value which are supplied by the bidder. Second, the unadjusted market price is unaffected by any flaws in the deal process that led to the ultimate merger agreement. Recently, commentators have contended that deal prices in merger transactions should be ignored in appraisal cases where there are flaws in the process that led to the sale.
This massive decision is a primer on Delaware director fiduciary duty. It covers just about all the important issues, with an enormous amount of citations and explanation. It is particularly helpful in showing how directors must meet their disclosure obligations, both to their other directors and to stockholders. It is, of course, very much a product of its unique facts.
What may be its most lasting impact is its conclusion that the deal price in a merger established fair value and that yet again a DCF analysis was defective. At least for publicly traded and well shopped companies, we may be seeing the end of DCF as the preferred measure of value in Delaware. (emphasis added)
via Morris James
A categorical/presumptive rule is bad law. The mandatory language of Section 262 of the Delaware General Corporate Law (DGCL) directs the Court of Chancery to “take into account all relevant factors” in determining fair value. As explained below, the appraisal remedy is separate and distinct from the common law governing fiduciary duties and cleansing conflicts of interest. A merger-price presumption would also disregard the principles enunciated in Weinberger v. UOP, 457 A.2d 701 (Del. 1983), directing the Court of Chancery to value companies using methodologies recognized and applied by professionals in the field, including (but not limited to) discounted cash flow (DCF) analysis. Instead, a broadly hewn “Merger Price” rule would effectively nullify the appraisal remedy, undermining the statutory mandate of \S~262.
A categorical/presumptive rule is also bad economics: To be sure, the price resulting from an arm’s-length process may accurately reflect fair value. But not always. In numerous seemingly benign cases, a facially disinterested process can still render a price falling short of fair value. In such situations, fair compensation requires an appraisal rule that is independent of the merger price. In fact, even the credible threat of an appraisal untethered to the merger price increases the chance that a market process will more accurately reflect fair value, as both bidders and target boards internalize the cost of approving a transaction at the lowest end of the range of fair values. As explained below, this ex ante benefit persists even if appraisals are prone to judicial error.
Finally, a categorical/presumptive rule is bad legal policy. Simply put, context matters: The evidentiary value of the deal price is a highly fact-sensitive question, ill-suited to a bright-line test. Any attempt at judicial line-drawing—preordaining circumstances where the transaction price must (or must not) be taken as conclusive—is doomed to be both over- and under-inclusive. The jurisprudential straightjacket urged by Appellant undermines the judicial discretion of Delaware’s sophisticated judiciary—a key factor in Delaware’s corporate law dominance.