As we previously posted, the Chancery Court appraised the fair value of Clearwire Corp. to be $2.13 per share, substantially below the $5 per share merger price paid by Sprint Nextel Corp in July 2013. This post will provide a more detailed breakdown of the ruling and the bases for Vice Chancellor Laster’s opinion.
As we have previously covered, Delaware has been considering whether to allow Delaware corporations (with Delaware being the site of the vast majority of appraisal litigation) to use blockchain platforms to issue and trade shares. As of July 21, that has become the law with Delaware’s governor signing a bill allowing blockchain to be used for the maintenance of corporate records, including stock ledgers. Blockchain is a concept of distributed ledger, as opposed to the centralized ledger system of DTCC. From JD Supra: “One practical reason for using blockchain technology to track the transfer of corporate securities stems from a long-standing uncertainty surrounding the property rights of investors who ‘ultimately have no identifiable relationship with the corporate issuers of investment securities’ that they purportedly hold.”
Professors Korsmo and Myers, whom we have blogged about before, have a new post on CLS Blue Sky Blog, titled “A Reality Check on the Appeals of the DFC Global Appraisal Case.” The Professors argue that the DFC Global appeal, which we’ve been covering, presents an attempt by deal advisors “to alter Delaware’s appraisal jurisprudence[,]” seeking to “undermine appraisal rights and shield opportunistic transactions from judicial scrutiny.” Urging the Supreme Court not to “tie the Court of Chancery’s hands in future cases” – the Professors cite recent research showing that appraisal petitions are “more likely to be filed against mergers with perceived conflicts of interest, including going-private deals, minority squeeze outs, and acquisitions with low premiums, which makes them a potentially important governance mechanism.”
Today the Delaware Chancery Court issued its ruling in the Clearwire case, which included claims for breach of fiduciary duty as well as appraisal arising from its acquisition by Sprint. We’ll provide a more comprehensive breakdown of the decision in a later post.
In the meantime, as reported today by Reuters, Hedge fund stung by unusual ruling over Sprint-Clearwire deal, the ruling “stands out for a court that rarely finds fair value below deal price, let alone more than 50 percent below.”
Among other factors, the court found that neither side argued in favor of deal price, and so the court did not even consider it but looked only at the respective valuation analyses put forth by each side’s valuation expert. Given the considerable synergies in this transaction, the court held that the deal price provided an “exaggerated picture” of Clearwire’s value. The court also noted that the experts’ choice of projections drove 90% of the difference in their DCF valuations.
Law360 [$$] recently covered appraisal rights, presenting an analysis by attorneys at Fried Frank [pdf] discussing the SWS appraisal decision. In their article, the Fried Frank lawyers note their view that it is a “misconception” that SWS heralds a new likelihood of below-merger-price appraisal decisions. Reviewing the SWS decision and the appraisal jurisprudence, the authors note that in only three cases (since 2010), of many more, have the Delaware courts found below merger price and that each such case involved “unusual facts” – and opine that while some commentators view SWS as making below-merger-price cases more likely, they do not share that view. Later last month, Fried Frank also posted a primer on “Appraisal Practice Points Post-SWS” [pdf] – following up on their prior article.