In the recent appraisal decision of Merion Capital L.P. v. Lender Processing Services Inc., C.A. No. 9320-VCL (Del. Ch. Dec. 16, 2016), the Delaware Court of Chancery determined the fair value of petitioners’ shares of stock in Lender Processing Services, Inc. (the “Company”). In January 2014, Fidelity National Financial, Inc. completed the merger by which it acquired the Company. The Court found that the fair value of the Company’s common stock at the effective time of the merger is $37.14
Each party’s expert used the discounted cash flow analysis in determine fair value of the shares, but came to different numbers. Petitioners’ expert determined that shares were worth $50.46/share, whereas the Company’s expert came to a value of $37.14/share. As cited by Vice Chancellor Laster: “[T]he DCF . . . methodology has featured prominently in this Court because it is the approach that merits the greatest confidence within the financial community.” Owen v. Cannon, 2015 WL 3819204, at *16 (Del. Ch. June 17, 2015) (quotation marks omitted).”
The Court provided a thorough and helpful analysis in terms of determining fair value, including discussions of the risk-free rate, the supply-side equity risk premium, beta, and size premium. The Court also considered a string of Delaware Chancery decisions which demonstrated how much weight the Court can give to the merger or deal price as evidence of fair value, stating as follows:
In a series of decisions since Golden Telecom II, this court has considered how much weight to give the deal price relative to other indications of fair value. In five decisions since Golden Telecom II, the Court of Chancery has given exclusive weight to the deal price, particularly where other evidence of fair value was unreliable or weak. In five other decisions since Golden Telecom II, the court has declined to give exclusive weight to the deal price in situations where the respondent failed to overcome the petitioner’s attacks on the sale process and thus did not prove that it was a reliable indicator of fair value.
The Court likened the case to AutoInfo and BMC, and gave full weight to the sale price. Here, Vice Chancellor Laster found that the Company ran a sale process that generated reliable evidence of fair value, and created a reliable set of projections that support a meaningful DCF analysis. Accordingly, the Court agreed with the Company’s expert appraiser and found that the fair value per share was $37.14.
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 email@example.com.