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.
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 firstname.lastname@example.org.