Fir Tree Value Master Fund, LP v. Jarden Corp., 2020 WL 3885166, 2020 Del. LEXIS 237 (Del. July 9, 2020)

  • Fir Tree Value Master Fund, LP v. Jarden Corp., 2020 WL 3885166, 2020 Del. LEXIS 237 (Del. July 9, 2020)

On appeal, the petitioners argue the Court of Chancery erred as a matter of law when it adopted Jarden’s unaffected market price as fair value because it ignored what petitioners claim is a “long-recognized principle of Delaware law” that a corporation’s stock price does not equal its fair value. They also claim that the court abused its discretion by refusing to give greater weight to a discounted cash flow analysis populated with data selected by petitioners, ignoring market-based evidence of a higher value, and refusing to use the deal price as a “floor” for fair value.

We affirm the Court of Chancery’s judgment finding $48.31 as the fair value of each share of Jarden stock as of the date of the merger. There is no “long-recognized principle” that a corporation’s unaffected stock price cannot equate to fair value. Although it is not often that a corporation’s unaffected market price alone could support fair value, the court here did consider alternative measures of fair value—a comparable companies analysis, market-based evidence, and discounted cash flow models—but ultimately explained its reasons for not relying on that evidence. Finally, Jarden’s sale price does not act as a valuation floor when the petitioners successfully convinced the court that the deal price resulted from a flawed sale process, and the court found Jarden probably captured substantial synergies in the sale price.

When a market is informationally efficient in the sense that the market’s digestion and assessment of all publicly available information concerning a company is quickly impounded into the company’s stock price, the market price is likely to be more informative of fundamental value. And how informative of fundamental value an informationally efficient market is depends, at least in part, on the extent of material nonpublic information. It is a traditional Delaware view that in some cases the price a stock trades at in an efficient market is an important indicator of its economic value and should be given weight.

via Sheppard Mullin

Scott Callahan, Darius Palia & Eric L. Talley, Appraisal Arbitrage and Shareholder Value, 3 J. L. Fin. & Accounting, 147 (2018)

  • Scott Callahan, Darius Palia & Eric L. Talley, Appraisal Arbitrage and Shareholder Value, 3 J. L. Fin. & Accounting, 147 (2018)

This paper considers the question of whether the 2007 reforms had the negative repercussions that critics lament, both from theoretical and empirical perspectives. Theoretically, we extend the auction-design framework developed in Choi and Talley (2017) to derive a series of comparative statics related to observable factors concerning M&A transactions and target shareholder welfare. Using this model, we demonstrate that a credible threat of an appraisal action can sometimes constitute a valuable vehicle for augmenting shareholder value, whereby the specter of later appraisal value acts as a credible type of “reserve price” in a company auction. … More significantly, our model delivers testable empirical predictions relating to how “shocks” to the appraisal remedy affect expected shareholder value. In particular, we show that under plausible assumptions as to the status quo ante, a liberalizing shock to appraisal will lead to enhanced target shareholder welfare if it is accompanied by an increase in expected merger premia for appraisal eligible deals.

We then test this (and related) predictions empirically using the 2007 reforms as an appraisal-liberalizing shock. First, we demonstrate (consistent with our model) that deal premia are discernibly higher in appraisal eligible transactions (even when one accounts for the tax status of the deal). Second, we use a difference-in-differences specification to consider the combined effects of the 2007 shocks (Transkaryotic and the amendment of DGCL 262(h)) on deal premia for appraisal-eligible acquisition (using appraisal-ineligible deals as 4Formally, this condition also requires the assumption that under the status quo ante, a control). We find consistent evidence that the liberalizing 2007 shocks were followed by significant increases in premia associated with appraisal eligible deals relative to the control group.

Salladay v. Lev, 2020 Del. Ch. LEXIS 78, 2020 WL 954032 (Del. Ch. Feb. 27, 2020) (Glasscock, V.C.)

  • Salladay v. Lev, 2020 Del. Ch. LEXIS 78, 2020 WL 954032 (Del. Ch. Feb. 27, 2020) (Glasscock, V.C.)

The Delaware Court of Chancery recently confirmed in Salladay v. Lev that conditioning a conflicted (but non-controller) transaction upon approval by a fully empowered, disinterested and independent special committee can restore the business judgment standard of review for the transaction (rather than the more burdensome entire fairness standard that would otherwise apply). However, the court (in an opinion by Vice Chancellor Glasscock) found that such special committee “cleansing” works only if the special committee protections are put in place prior to the commencement of discussions about what might constitute an acceptable price. In Salladay, the court held that the company chairman’s discussions with the acquirer regarding price created a price collar before the special committee was formed that set the tone for future negotiations, and therefore, the special committee’s approval of the transaction did not restore the business judgment standard of review.

via Cooley, Potter Anderson, Morris James, GD&C, S&C

Salzberg v. Sciabacucchi, 2020 Del. LEXIS 100 (Del. Mar. 18, 2020)

RLF writes:

In the highly anticipated decision of Salzberg v. Sciabacucchi, No. 346, 2019 (Del. Mar. 18, 2020), the Delaware Supreme Court, reversing the Delaware Court of Chancery’s decision, confirmed the facial validity of provisions in the certificates of incorporation of Blue Apron Holdings, Inc., Stitch Fix, Inc., and Roku, Inc. requiring all claims under the Securities Act of 1933 (the “’33 Act”) to be brought in federal courts (“Federal Forum Provisions”). Similar provisions have been adopted by dozens of Delaware corporations and are intended to address the inefficiencies of multi-jurisdictional ’33 Act litigation in light of the increasing number of ’33 Act claims filed in state, rather than federal, courts.

via Richards, Layton & Finger

See also Opinion

Manichaean Capital v. SourceHOV Holdings, 2020 Del. Ch. LEXIS 38 (Del. Ch. Jan. 30, 2020)

In fulfilling the statutory mandate to account for “all relevant factors” bearing on “fair value,” Delaware courts consider a range of evidence that often includes (i) “market evidence,” such as a company’s unaffected trading price or the “deal price” following an appropriate “market check” and (ii) “traditional valuation techniques,” such as a comparable company, comparable transaction or DCF analysis. In this case, however, the parties and their experts agree that the circumstances surrounding the Business Combination disqualify market evidence as reliable inputs for a fair value analysis. Accordingly, the valuation presentation from both sides focused on DCF. In my view, that focus was well placed.

SourceHOV’s deal process (or lack thereof) undermines any reliance on deal price as an indicator of fair value. Moreover, as a private company, SourceHOV’s equity was not traded in an efficient market, so its unaffected market price is also an unreliable indicator of fair value. Without reliable market evidence of fair value, the parties were left to focus on “traditional valuation methods” to appraise SourceHOV. This, of course, places the spotlight squarely on their competing valuation experts. In other words, as I see it, this case has played out as the quintessential “battle of the experts.”

Both experts agree there are no sufficiently comparable companies or transactions with which to perform either a trading multiples or a transaction multiples analysis. Given that other valuation techniques do not fit here, both experts also agree that a DCF analysis is the only reliable method to calculate SourceHOV’s fair value. In light of the experts’ agreement, and seeing no reason to disagree, I am satisfied that a DCF analysis is the only reliable indicator of SourceHOV’s fair value. (footnotes omitted)

via Lowenstein Sandler, DealLawyers

In re Appraisal of Panera Bread Company

In re Appraisal of Panera Bread Company, 2020 Del. Ch. LEXIS 42 (Jan. 31, 2020) (Zurn, V.C.)

In this appraisal action, I must determine the fair value of each share of the subject company on the closing date of its acquisition. I find that the process by which the company was sold bore several objective indicia of reliability, which were not undermined by flaws in that process. I therefore find that the deal price is persuasive evidence of fair value, and give no weight to other valuation metrics. I deduct some synergies, but find others were not adequately proven. I undergo that synergies analysis solely to fulfill my statutory mandate, rather than to effectuate any transfer of funds between the parties, because the company prepaid the entire deal price and has no recourse for a refund under the appraisal statute.

via Columbia, S&C,

デラウェア州最高裁判所裁判官の指名

Delaware.gov:

Governor John Carney on Thursday announced his intention to nominate Justice Collins J. Seitz, Jr. to serve as the next Chief Justice of the Delaware Supreme Court. Justice Seitz — who since 2015 has served as an Associate Justice on the Supreme Court — would replace Chief Justice Leo E. Strine, Jr., who announced his retirement in July. Governor Carney also intends to nominate Vice Chancellor Tamika Montgomery-Reeves to serve as Associate Justice on the Supreme Court, replacing Justice Seitz. (emphases added)

Delaware Business Times writes:

Hamermesh called the nomination of Seitz, whose late father Collins J. Seitz Sr. is held in high regard for his Chancery Court opinion supporting Delaware’s desegregation of schools, for the court’s top seat a “perfectly respectable pick.”

 調べてみましたが、この判決は、どうやらBelton v. Gebhart, 32 Del. Ch. 343, 87 A.2d 862 (Del. Ch. 1952)のようです。著名なBrown v. Board of Education of Topeka, 347 U.S. 483 (1954)の2年前の判決ということになります。衡平法裁判所がこういった人権問題を扱っていた時期があるんですね。

I conclude from the testimony that in our Delaware society, State-imposed segregation in education itself results in the Negro children, as a class, receiving educational opportunities which are substantially inferior to those available to white children otherwise similarly situated.

But my factual conclusion does not dispose of the first question presented. I say this because it is necessary to consider the decisions of the United States Supreme Court construing the Fourteenth Amendment as they apply to this general problem. Specifically, I must decide whether such a finding of fact as I have here made, is a proper basis for holding that such separate facilities cannot be equal. In other words, can the “separate but equal” doctrine be legally applied in the fields of elementary and secondary education?

Plaintiffs say that the situation here presented has never been passed upon by the United States Supreme Court, or the Supreme Court of Delaware, and so is an open question. I agree with the plaintiffs that the Supreme Court has not, so far as I can find, passed upon a case containing a specific finding as to the effect on the Negro, educationally, of State-imposed segregation in education. The question, however, which judicial integrity requires me to answer is this: Has the U.S. Supreme Court by fair or necessary implication decided that State-imposed segregated education on the grammar and high school levels, in and of itself, does not violate the Fourteenth Amendment?

The United States Supreme Court first announced what has come to be known as the “separate but equal” doctrine in Plessy v. Ferguson, 163 U.S. 537, 16 S.Ct. 1138, 1144, 41 L.Ed. 256. It is, of course, true that that case involved a railway car situation. However, the defendants rely most strongly on Gong Lum v. Rice, 275 U.S. 78, 48 S.Ct. 91, [*350] 72 L.Ed. 172, decided by the U.S. Supreme Court in 1927. In that case a Chinese citizen was required to attend an elementary school for Negroes in Mississippi, even though he claimed that he was entitled to admission to the school for whites. The court accepted the conclusion that he was “colored” and stated that the facilities available for Negroes, and therefore available to the Chinese plaintiff, were equal to those offered to the whites. Thus, the question was whether the State was required, under those circumstances, to admit him to the school for white children. The Supreme Court held that the State was not so required, citing many cases for the proposition that such a practice was within the constitutional power of the State, without interference because of the United States Constitution. It is true that there was no proof in that case concerning the effect of such State-imposed segregation on Negroes. But it seems to me that the very use of the “separate but equal” doctrine in an elementary school case, has implicit therein a recognition that in such a case there can be separate but equal educational opportunities in a constitutional sense. Of course, this could not be true were my finding of fact given constitutional recognition, but if it were, the principle itself would be destroyed. In other words, by implication, the Supreme Court of the United States has said a separate but equal test can be applied, at least below the college level. This court does not believe such an implication is justified under the evidence. Nevertheless, I do not believe a lower court can reject a principle of United States constitutional law which has been adopted by fair implication by the highest court of the land. I believe the “separate but equal” doctrine in education should be rejected, but I also believe its rejection must come from that court.

Belton v. Gebhart, 32 Del. Ch. 343, 349-350, 87 A.2d 862, 865 (Del. Ch. 1952 )

via DealLawyers.com, Law.com, Wash. Post, N.Y. Times

William T. Allen (1948–2019)

 Allen教授は、1985年にデラウェア州の衡平法裁判所の大法官(Chancellor)に任命され、以後、12年の任期中に多数の有名な判決を執筆されました。2006年にニューヨーク大学のLL.M.プログラムに入学した際には、会社法プログラムのディレクターでした。

 Intercoは、Allen教授が大法官として執筆されたものの中で(その後最高裁判所に否定されているにもかかわらず)私のお気に入りの判決です。ニューヨーク大学在学中のlunchonセミナーの講演者が「デラウェア州最高裁判所がAllen裁判官の判決を覆したとしても、Allen裁判官がいつも正しい」というようなこといったのが印象に残っています。Allen裁判官のお話は、時に深淵で難しく、その真意を理解することが難しいことがありましたが、Interco判決の素晴らしさを含めて、今思い出して漸く意味が分かることも多いです。

 ニューヨーク大学でのKahan教授とAllen教授の演習では、Kahan教授に一歩も引かずに議論をされていました。スーツが良く似合い、多弁で、Blackberryを腰に下げていて、多忙な実務家を体現していました。演習の中のAllen先生の言葉で印象的なのは、会社法学で重要なのは、エージェンシー理論と情報の非対称性だと仰っていたことです。私が、エージェンシー理論と情報の非対称性にこだわるのは、この影響が強いように思います。

 私にとって、Allen教授は、とてもチャーミングな方で、いかめしそうな大法官という役職とは無縁な方でした。演習で、Lucian Arye Bebchuk, The Case Against Board Veto in Corporate Takeovers, 69 U. Chi. L. Rev. 973 (2002)を報告した際に、同論文の中に出てきたAllen大法官の「Human nature may incline even one acting in subjective good faith to rationalize as right that which is merely personally beneficial」という一文を紹介したのですが、Allen先生は、鼻のしたをこすり、また、胸を張って誇らしげでした。そのコミカルなリアクションのおかげで報告の場がなごみました。また、卒業式のセレモニーで、会社法専攻の学生は、Allen教授に名前を呼ばれるのですが、演習に参加していた私の名前を呼ぶ際に、ウインクしてくれたことを覚えています。卒業後は、ニューヨーク大学のLL.M.を受験する学生を推薦するメールを送るくらいしか関係がありませんでしたが、いつも丁寧なメールを返してくれました。教職についたあとは、そのことを祝福し、「Congratulations This is a wonderful job as you know!」というメッセージを送ってくださいました。

 実務と学問のバランスに配慮し、規範的な議論や法政策に基づく議論をすることが重要であることを教えてくれましたし、今後もAllen教授に学ぶことは多いように思います。ご冥福をお祈りいたします。

via WLRK, Delaware Business Now, Delaware Judiciary, Chancery Daily, Professor Bainbridge, John C. Coffee Jr., Ronald J. Gilson, Jack B. Jacobs, Theodore N. Mirvis and Paul K. Rowe, Leo E. Strine Jr.,