The highly publicized Dell and DFC Global appraisal opinions issued by the Delaware Supreme Court in 2017 inform that where a company is sold in a clean M&A auction process, with information sufficiently disseminated to potential bidders, the merger price will be given significant weight, leaving it to the trial court to decide just how much weight that should be in this case.  For a review of prior blog posts addressing the Dell and DFC Global decisions, click here and here, respectively.

Since Dell and DFC Global, several Court of Chancery opinions have considered whether to give significant weight to merger price in determining fair value.  These decisions include In re Appraisal of AOL Inc., C.A. No. 11204-VCG (Del. Ch. Feb. 23, 2018), and Verition Partners Master Fund Ltd. v. Aruba Networks Inc.  In the former, Vice Chancellor Glasscock found that the sales process was not “Dell-compliant”, and thus assigned no weight to the deal price.  The latter went the other way, finding that the sales process was sufficiently adequate.

In the recent decision of Blueblade Capital Opportunities v. Norcraft Company, Inc.C.A. No. 11184-VCS (Del. Ch. July 27, 2018), Vice Chancellor Slights found that “the evidence reveals significant flaws in the process leading to the Merger that undermine the reliability of the Merger Price as an indicator of Norcraft’s value.” Slip op. at 3. This is so because the Court found that there was no pre-signing market check, that Norcraft and its advisors “fixated on Norcraft and never broadened their view to other potential partners”, and that Norcraft’s lead negotiator “was at least as focused on securing benefits for himself as he was on securing the best price available for Norcraft.” Id. 

Accordingly, the Court declined to rely upon deal price, but instead determined fair value by turning to the discounted cash low analysis presented by the parties, and “borrowed the most credible components of each expert’s analysis to conduct [the Court’s] own DCF valuation”.  In so doing, the Court’s DCF valuation yielded a fair value of $26.16 a share, up slightly from the deal price at $25.50 a share.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.