In the latest of a wave of appraisal opinions issued in Delaware, on August 1st, the Delaware Supreme Court reversed the highly-publicized DFC Global appraisal ruling, in DFC Global Corporation v. Muirfield Value Partners, L.P.No. 518, 2016 (Del. Ch. Aug. 1, 2017).

A recent string of decisions have found that the deal price of a merger, when there was an arm’s length transaction achieved after a well-structured and robust sales process, may be the best evidence of “fair value” of the merger proceeds at issue.  This decision reinforces this notion, although the Supreme Court declined to go so far as declaring a bright-line rule.

In DFC Global, the Delaware Supreme Court reversed a Court of Chancery ruling that payday lender DFC Global Corp. (“DFC” or the “Company”) was sold for an amount less than fair value in 2014.  Last year, Chancellor Bouchard determined that the fair value of the petitioners’ 4.6 million DFC shares was $10.21 each, a roughly 7 percent increase over the deal price.  For a discussion of the lower court’s decision, click here.

This was one of two decisions in 2016, where the Court of Chancery found fair value to be greater than the deal price.  In the other decision, In re: Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 31, 2016), Vice Chancellor Laster found fair value to be 22% greater than the deal price, which stood for the premise that deal price is not a fair value indicator in the context of a management-led buyout.  The Dell decision is similarly pending before the Delaware Supreme Court.  For a review of this decision, click here.

In reversing the Court of Chancery, the High Court found that reversible error had been committed by only according a one-third weighting of the deal price to the valuation of DFC’s common stock.  Under these circumstances, the deal price should have been accorded greater emphasis.  The Supreme Court further addressed the ability of the market to reflect regulatory impact on the stock price, and rejected the trial court’s conclusions that regulatory upheaval justified a downward weighting of the deal price.  The Supreme Court ordered the Court of Chancery to explain its weighting methodology on remand.

Stay tuned for the Delaware Supreme Court’s decision in Dell.

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.

On April 17, 2019, the Delaware Supreme Court reversed a significant appraisal decision from the Delaware Court of Chancery in Verition Partners Master Fund, Ltd. v. Aruba Networks, Inc., No. 368, 2018 (Del. Apr. 17, 2019).  In Aruba, the Supreme Court reversed the trial court’s fair value award of $17.13 a share, directing the Court of Chancery to enter judgment at the deal price (minus synergies value) of $19.10 per share.

In so doing, the High Court found that the Court of Chancery improperly concluded that the fair value of Aruba’s stock was equal to the unaffected market price of Aruba’s shares, which was thirty percent lower than the deal price.  The Supreme Court ruled that the Vice Chancellor’s “decision to use the trading price as his sole basis for determining fair value was his alone, and in no way dictated by a rational reading of Dell”. (Slip op. at 20).

That said, the Supreme Court agreed with the Court’s conclusion that, on this record, “‘the deal price . . . operates as a ceiling for value.’” Slip op. at 25.  After excluding synergy values “or other value the buyer expects from changes it plans to make to the company’s ‘going concern’ business plan” (Slip op. at 9), the Supreme Court accepted Aruba’s calculation of its fair value at $19.10 per share, which was below the $24.67/share deal price, but higher than the trial court’s $17.13 market price valuation.

Key Takeaway: The Aruba decision reinforces the recent string of Delaware decisions, such as Dell and DFC Globalin which the Delaware Supreme Court has found that the deal price should represent strong evidence of fair value (assuming an arm’s length transaction and robust sales process), subject to reduction for synergies.  Appraisal practitioners should continue to take notice.

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.

In the recent decision of In re PLX Technology, Inc. S’holders Litig., Consl. C.A. No. 9880-VCL (Del. Ch. Oct. 16, 2018), the Delaware Court of Chancery found that shareholders of PLX Technology Inc. (“PLX”), a semiconductor firm, failed to prove that breaches of fiduciary duty by its directors caused any damages.

The shareholders brought the suit after PLX announced the proposed sale to a competitor, Avago Technologies Wireless Manufacturing Inc. (“Avago”) at a price of $6.50 per share.  The complaint alleged that the sale process was flawed, stating that Potomac Capital Partners LP (“Potomac”), a 10% shareholder of PLX, pushed for a quick sale that undervalued the company, at a time when PLX was on the cusp of significant improvement.

The claims against two directors of PLX and Avago were previously dismissed, and a settlement was reached with the remaining director defendants before trial. The aiding and abetting claims against Potomac were the remaining claims left to be decided in the instant opinion.

In a lengthy opinion, Vice Chancellor Laster found that while PLX shareholders showed that the company’s directors breached their duty in approving a sale to a competitor in 2015, Potomac did not aid and abet those breaches of fiduciary duties even though it pushed for the deal while not providing transparent information to other investors.

Regarding damages, Vice Chancellor Laster said that the financial projections relied upon by the shareholders’ valuation expert to demonstrate the company was worth $9.82 per share were aggressive and unlikely to be realized, because they anticipated significant revenues from a product line (not yet in existence) that would require PLX to enter a new market.  In addition, PLX had a history of missing its projections.  Citing the Delaware Supreme Court Dell decision, the opinion stated that “The Delaware Supreme Court has cautioned that “[m]anagement’s history of missing its forecasts should . . . give[] the Court of Chancery pause.”  Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd., 177 A.3d 1, 27, n. 129 (Del. 2017).

In relying upon deal price, the opinion cited to recent Delaware Supreme Court rulings, including Dell and DFC Glob. Corp. v. Muirfield Value P’rs., 172 A.3d 346, 362 (Del. 2017), that give significant weight to deal price in an appraisal actions.  Because the Court found that PLX conducted an extensive marketing process both before and after the offer received from Avago that satisfied the High Court’s requirements, plaintiff stockholders were unable to demonstrate damages.

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.

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.

On May 21, 2018, the Delaware Court of Chancery denied Petitioners’ motion for reargument in the Aruba Networks appraisal litigation, styled as Verition Partners Master Fund Ltd. v. Aruba Networks Inc., C.A. No. 11448-VCL (Del. Ch. May 21, 2018).  In the Court’s post-trial memorandum opinion, dated February 15, 2018, Vice Chancellor Laster issued a ruling, setting the stock’s fair value at Aruba’s thirty-day average unaffected market price, which was $17.13 per share, which was significantly below the merger price of $24.67.

In denying Petitioner’s motion for reargument, the Vice Chancellor defended the reasoning of the post-trial memorandum opinion, with provided a further discussion of DFC Global and Dell.  In the original Aruba Networks opinion, Vice Chancellor Laster determined that an efficient market existed for the target’s shares, given the following factors: (i) the presence of a significant amount of stockholders, (ii) the absence of a controlling stockholder, (iii) fulsome trading volume for the target’s stock, (iv) the broad dissemination of information about the target to the market, and (v) that the Court found that the target’s sale process had been robust.  The Court also noted that the transaction was an arm’s-length merger.

In light of the above, the Court determined that the transaction was “Dell-compliant” and therefore market-based indicators would provide the best evidence of fair value. Of note, Vice Chancellor Laster found that both the deal price and the unaffected stock price constituted probative evidence of fair value.  However, the Court elected to rely upon the unaffected stock price, in light of synergies that the parties expected the transaction to generate.  The Court found that the unaffected stock price reflected “the collective judgment of the many based on all the publicly available information … and the value of its shares.” (Slip op., at 120.)  Vice Chancellor Laster observed that using the deal price and subtracting synergies would involve judgment and introduce a likelihood of error in the calculation.

Key Takeaway:  Consistent with DFC Global and Dell, Aruba Networks reinforces the notion that the Court may look to the deal price in an arm’s-length merger as part of a robust sale process in determining fair value.  But Aruba Networks also lends support for reliance upon the target’s unaffected stock price in determining fair value, to the detriment of the petitioner given the disparity between deal price and stock price.  Appraisal petitioners beware.

Carl D. Neff is a lawyer 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.

In a long awaited and highly anticipated ruling, the Delaware Supreme Court overturned the Court of Chancery’s decision in the Dell appraisal action, Dell v. Magnetar Global Event Driven Master Fund, No. 565, 2016 (Del. Supr. Dec. 14, 2017).

By way of background, in the 2016 Court of Chancery opinion, In re: Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 31, 2016), Vice Chancellor Laster found fair value of the Dell merger to be 22% greater than the deal price, holding that deal price is not a fair value indicator in the context of a management-led buyout.  For a review of the Court of Chancery’s decision, click here.

On appeal, the High Court reversed and remanded the Chancery’s decision in an unanimous en banc decision.  Of significance, the Supreme Court found that where a company is sold in a clean M&A auction process, the Court of Chancery must give the merger price significant weight in its ruling, leaving it to the trial court to decide just how much weight that should be in this case.  Accordingly, the Supreme Court ruled that the Court of Chancery abused its discretion in placing no weight upon the transaction price when valuing the Dell shares at the time of its going-private merger in 2013, and instead relying exclusively on its own discounted cash flow analysis.

This Dell opinion is consistent with the Delaware Supreme Court’s August 2017 decision in DFC Global v. Muirfield Value Partners, No. 518, 2016 (Del. Supr. Aug. 1, 2017), whereby the High Court held that a deal price should represent strong evidence of fair value.  To review a prior post highlighting the DFC Global decision, click here.

Key Takeaway:

The Delaware Supreme Court’s decisions in DFC Global and now Dell make clear that significant weight to the deal price must be afforded when analyzing fair value of a company that is merged or consolidated in a clean, arm’s-length transaction.  Appraisal petitioners therefore will need to demonstrate flaws in the merger process to overcome the “heavy weight” afforded to the deal price.

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.

John O’Toole writes:

In In re Appraisal of DFC Global Corp., the Court of Chancery conducted an in-depth analysis of three common valuation methodologies—discounted cash flow analysis, multiples-based comparable company analysis, and deal price.  After discussing how each methodology was and should be applied, Chancellor Bouchard ultimately determined that although “all three metrics suffer from various limitations” the fair value of the merger in question was best ascertained by weighting all three methods equally.

The Court’s opinion serves a number of useful purposes.  First, it provides a comprehensive overview of each the methodologies discussed.  Second, given the context in which the Court’s analysis was done, it offers guidance on how to best determine the fair value of a company following a deal consummated in a “tumultuous environment” where a company’s “future profitability and…viability” are at issue.


John O’Toole is a summer associate, resident in the firm’s Wilmington office.