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

Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 2017 Del. LEXIS 518 (Del. Dec. 14, 2017)

By instructing the court to “take into account all relevant factors” in determining fair value, the statute requires the Court of Chancery to give fair consideration to “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court.” Given that “[e]very company is different; every merger is different,” the appraisal endeavor is “by design, a flexible process.”

This Court has relied on the statutory requirement that the Court of Chancery consider “all relevant factors” to reject requests for the adoption of a presumption that the deal price reflects fair value if certain preconditions are met, [*40] such as when the merger is the product of arm’s-length negotiation and a robust, non-conflicted market check, and where bidders had full information and few, if any, barriers to bid for the deal.

… Further, the Court of Chancery’s analysis ignored the efficient market hypothesis long endorsed by this Court. It teaches that the price produced by an efficient market is generally a more reliable assessment of fair value than the view of a single analyst, especially an expert witness who caters her valuation to the litigation imperatives of a wellheeled client.

… Fair value entails at minimum a price some buyer is willing to pay—not a price at which no class of buyers in the market would pay.

When an asset has few, or no, buyers at the price selected, that is not a sign that the asset is stronger than believed—it is a sign that it is weaker. This fact should give pause to law-trained judges who might attempt to outguess all of these interested economic players with an actual stake in a company’s future. This is especially so here, where the Company worked hard to tell its story over a long time and was the opposite of a standoffish, defensively entrenched target as it approached the sale process free of many deal-protection devices that may prevent selling companies [*73] from attracting the highest bid. Dell was a willing seller, ready to pay for credible buyers to do due diligence, and had a CEO and founder who offered his voting power freely to any topping bidder.

(footnotes omitted)

via Wachtell Lipton

Professors Weigh In On DFC Global Appeal

〔2017年1月1日追記〕

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.

〔2017年1月9日追記〕

via Lowenstein Sandler, Lowenstein Sandler

Merion Capital, LP, et al. v. Lender Processing Services, Inc., C.A. No. 9320-VCL, memo. op. (Del. Ch. Dec. 16, 2016)

取引価格(合併価格)への回帰ということで。

“… [T]the figure of $38.67 per share is my best estimate of the fair value of the Company based on the DCF method.

… As noted, a DCF analysis depends heavily on assumptions. Under the circumstances, as in [Merlin Partners, LP, et al. v. AutoInfo, Inc., C.A. No. 8509-VCN, memo. op. (Del. Ch. Apr. 30, 2015),] and [Merion Capital, LP, et al. v. BMC Software, Inc., C.A. No. 8900-VCG, memo. op. (Del. Ch. Oct. 21, 2015)], I give 100% weight to the transaction price.”

Evaluating the reliability and persuasiveness of the deal price for purposes of establishing fair value in an appraisal proceeding is a multifaceted, fact-specific inquiry. The relevant factors can vary from case to case depending on the nature of the company, the overarching market dynamics, and the areas on which the parties focus. The last is perhaps an underappreciated aspect of appraisal jurisprudence. Because an appraisal decision results from litigation in which adversarial parties advance arguments and present evidence, the issues that the court considers and the outcome that it reaches depend in large part on the arguments that the advocates make and the evidence they present. An argument may carry the day in a particular case if counsel advance it skillfully and present persuasive evidence to support it. The same argument may not prevail in another case if the proponents fail to generate a similarly persuasive level of probative evidence or if the opponents respond effectively.

via Lowenstein Sandler, The Chancery Salvo