Law professors who filed an amicus brief in support of petitioners in the Aruba case have provided a useful summary of their arguments in this blog post from the Harvard Law Corporate Governance Forum. With market efficiency issues increasingly intersecting with more traditional valuation and process issues in appraisal cases, this amicus could be particularly relevant to the Delaware Supreme Court as it considers the Aruba appeal. For more on Aruba, see our multiple posts.
Appraisal cases increasingly focus on how markets react to merger news and what one learns from that. Recent cases that have looked to “unaffected” merger price – that is, the price of a share of the target company before the merger announcement – in part because of the fundamental truth that mergers are market moving events.
So are the breakup of mergers. The case of Fresenius and Akorn, pending before Vice Chancellor Travis Laster, while outside the realm of appraisal, has seen the Vice Chancellor asking questions of the parties very close to the kind of questions one sees in appraisal. As this analysis from Law360 [$$$] discusses, the Vice Chancellor pressed the parties’ lawyers on how the market was valuing Akorn with the uncertainty of the merger. While ‘merger price’ in the deal is $34 a share, Akorn trades for less than $20 a share – and the Vice Chancellor noted that without a deal at all, one would imagine the market price would be even lower.
This line of questioning – and the economic principles underlying it – suggest more than such a limited reading. Akorn’s market price is a reflection of information and risk. Certainly, even if Akorn was an incredibly attractive asset at $33, any buyer would need to consider the mess of the litigation, and the risk that Akorn is force-sold to Fresenius, in their valuation. This analysis highlights the fact that a pending merger bid (no less pending merger litigation) can distort the market price – something that the appraisal remedy aims to address.
For more on the Akorn Fresenius litigation, see the Law360 coverage [$$$].
Fresenius has prevailed at the Chancery court level.