Cadwalader attorneys analyzed three recent appraisal decisions from the Delaware Court of Chancery relating to the determination of a merger partner's "fair value."

The attorneys considered three recent appraisals: Jarden Corporation (Jarden); Columbia Pipeline Group, Inc. (Columbia); and Stillwater Mining Company (Stillwater). They stated that the appraisal decisions reaffirmed the importance of market-based factors as indicators of fair value. The attorneys highlighted the following takeaways:

  • Delaware Courts will look to "objective indicia" of reliability that show that the deal price was fair;

  • a Board of Directors needs to remain informed throughout the sale process;
  • management's conflicting incentives do not necessarily undermine the reliability of the deal price as an indicator of fair value;
  • a Board's conduct may mitigate errors committed by management in the sale process;
  • a single-bidder process may suffice, depending on the particular facts of the case;
  • if a seller undertakes a pre-signing market check, for it to be effective then care should be taken in conducting the outreach to potential buyers, providing them with sufficient time for due diligence, and treating potential bidders fairly;
  • active negotiations between buyer and seller and the existence of a post-signing market check can provide strong evidence that the deal price is reliable;
  • the unaffected market price of a seller's stock also may be evidence of fair value;
  • directors need to ensure that proxy statement disclosure is adequate;
  • a comparable companies analysis will be given weight only if there is evidence that the "peer set" is truly comparable to the seller;
  • proving synergistic value can be challenging;
  • a controlling stockholder may undermine the reliability of market-based valuation methodologies for determining fair value; and
  • litigation strategy remains crucial to the outcome of an appraisal proceeding.

This memorandum was authored by Jason Halper, Nathan Bull, Sara Bussiere and Monica Martin.

Commentary

Jason M. Halper

Although the Delaware Supreme Court has offered more guidance in recent years on the appropriate valuation methodology for appraisal actions, Jarden, Columbia and Stillwater serve as reminders that because the valuation process is a case-specific fact-finding exercise, the valuation methodology used to determine fair value will largely depend on the facts of each case. However, these decisions ultimately underscore the preeminence of market-based factors over other valuation methodologies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.