Today the Delaware Supreme Court reversed and remanded the appraisal decision of the Chancery Court in the highly watched DFC Global case. A more detailed post will follow, but we wanted to flag the ruling in the meantime.
The court declined DFC Global’s request to impose a presumption by “judicial gloss” that would peg fair value at the merger price in cases involving arm’s-length mergers. The court found that such an approach would have no basis in the statutory text, which gives the Chancery Court discretion to determine fair value by taking into account “all relevant factors.”
The court did accept two other “case-specific” arguments by DFC Global. First, the Supreme Court directed that on remand (i.e., when the trial court gets the case back from the Supreme Court), the Chancery Court — which in its valuation analysis had given equal weight to each of (i) the deal price, (ii) its DFC analysis, and (iii) a comparable companies analysis — should reconsider the weight it gave to the deal price in finding fair value based on certain factors in this case. Second, the Supreme Court found that there was not adequate basis in the record in this case to support the Chancery Court’s increase in the perpetuity growth rate it assumed for DFC Global from 3.1% to 4.0% when it corrected an error that had been raised during reargument.
In addition, the Supreme Court denied the cross-appeal, by which the stockholders argued that the DCF analysis be given primary, if not sole, weight in the valuation analysis. The court found that giving weight to the comparable companies analysis in this case was within the Chancellor’s discretion.
We will continue to monitor the proceedings to follow in the Chancery Court.
**As previously noted, this law firm was counsel of record on one of the amici briefs filed in this case.