In this post by Professor Afra Afsharipour of the UC Davis School of Law, she discussed what she identifies as the bidder overpayment problem, where bidders often pay more for publicly traded targets due to managerial agency costs and behavioral biases. The article notes that there are less monitoring mechanisms for bidder shareholders than there are for target shareholders to ensure a fair price. For instance, while target shareholders can bring appraisal proceedings in some transactions, bidder shareholders do not receive any appraisal rights even in transactions where they have the right to vote. The author ultimately argues for a “shareholder voice in situations of high importance to firm value and share price.”

 

The Harvard Law School Forum on Corporate Governance and Financial Regulation recently posted an analysis by Wachtell, Lipton, Rosen & Katz of the Delaware Supreme Court’s recent decision in SWS, summarily affirming the Delaware Chancery Court’s award of fair value at 7.8% below the merger price.  The authors observe that SWS is the first Delaware Supreme Court decision “in the era of ‘appraisal arbitrage’ to affirm an appraised valuation meaningfully below the deal price.”  For more on SWS, see our coverage here .

In the Columbia Pipeline Group appraisal case, as reported in Law360 [$$], Vice Chancellor Laster rejected the stockholders’ request to stay or, in the alternative, extend the fact discovery deadline for 2 months pending the appeal of the Aruba Networks ruling.  The court stated in its March 7 ruling that the shareholders should have known from the outset of the case that Columbia Pipeline’s market price “would be a factor” in the proceedings, and that the Aruba decision did not introduce anything new, “whether as a matter of doctrine or for purposes of the parties’ case strategy or trial tactics.”

The court also contrasted the stay request put before it to that in Aruba Networks, where the same judge did stay proceedings pending the Supreme Court’s decision in DFC Global.  The court’s rationale was that the Aruba proceedings had been nearly completed, and the DFC appeal had been argued, with a ruling expected within 90 days, thus warranting a stay.  In Columbia Pipeline, by contrast, the parties are in the midst of discovery, and the Aruba appeal has not yet even been taken given the pendency of a motion for re-argument before the trial court.

On Friday, Vice Chancellor Glasscock issued his ruling in the AOL appraisal case. The court first set out to determine whether the merger transaction was “Dell Compliant,” which the Court defined to be “[w]here information necessary for participants in the market to make a bid is widely disseminated, and where the terms of the transaction are not structurally prohibitive or unduly limiting to such market participation.”  Where those factors are present, “the trial court in its determination of fair value must take into consideration the transaction price as set by the market.”  The Court then concluded, however, that the deal process in AOL was not “Dell Compliant” and relied entirely on a discounted cash flow analysis to award petitioners $48.70, or 2.6% below merger price. 

We’ve written before about the SWS appraisal case, decided in mid  2017. After the ruling, petitioners appealed to the Delaware Supreme Court. On Wednesday, February 21, the Delaware Supreme Court held oral argument (which you can watch on this site). Part of the argument focused on the concept of size premium – a primer on which is available here – and which is being contested in the SWS appeal.  For more on the SWS oral argument, see Law360 [$$$].

The Harvard Business Law Review has published “The High Cost of Fewer Appraisal Claims in 2017: Premia Down, Agency Costs Up” an article we’ve blogged about previously, including commentary from interested authors.  The HBLR piece, by Matthew Schoenfeld, argues that weakened shareholder litigation reduces the acquisition premium in mergers.  This is another contribution to the growing body of work connecting appraisal – and other litigation remedies – to protection of shareholder rights and value.

A copy of the HBLR article is available here.

The Delaware Supreme Court issued its highly-anticipated ruling today in the Dell appraisal case, reversing and remanding the trial court’s 28% premium awarded to the stockholders.  In sum, the court held that where a company is sold in a pristine M&A auction process, the chancery court must give the merger price “heavy weight” in its ruling, leaving it to the trial court to decide just how much weight that should be in this case.   The Supreme Court also ruled on a cross-appeal challenging how the trial court assessed expenses across the appraisal class.

For further coverage of the Dell decision, see the links below.

Appraisal Apprisal: Dell v. Magnetar, Eric Talley & Jeffrey Gordon, CLS Blue Sky Blog

Delaware Supreme Court Reverses And Remands Dell MBO Appraisal Decision, Finding The Trial Court Erroneously Disregarded The Deal Price, Shearman & Sterling

Dell Ruling Bridges Philosophical Gap In Del. Appraisal Law, Law360 [$$]

Appraisal Litigation Update, Cadwalader, HLS Forum on Corporate Governance and Financial Regulation

Finding the Right Balance in Appraisal Litigation: Deal Price, Deal Process, and Synergies, Lawrence Hamermesh & Michael L. Wachter, HLS Forum on Corporate Governance and Financial Regulation

Delaware Supreme Court Reaffirms Importance of Deal Price in Dell Appraisal Reversal, White & Case

Delaware Supreme Court Further Clarifies Appraisal Principles Applicable To Public Company Buy-Outs, Clifford Chance

**This firm is a counsel of record in the Dell case.

On Monday, Law360 [$$] reported that the stockholders in the Clearwire appraisal action filed their opening brief in support of their appeal of the Chancery Court’s ruling, which found the fair value of Clearwire Corp. to be $2.13 per share, well below the $5 per share deal price paid by Sprint Nextel Corp.  As reported in the article, on appeal, the stockholders argue that the “staggering discount” awarded by the Chancery Court is “virtually unprecedented.”  We have previously posted on the Chancery decision here.  We will continue to monitor the appeal and post on new developments as they arise.