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.

**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.

The Delaware Supreme Court made its ruling this week in the ISN Software appraisal case.  A three-judge panel (not the full bench) affirmed the Chancery Court’s decision awarding a premium that was more than 2.5 times the merger price, as reported in Law360 [$$].  The Supreme Court affirmed without rendering its own opinion, relying instead on the trial court’s reasoning.  ISN Software was a privately held software company, with the appraisal case stemming from the controlling stockholder’s cash-out of some of the minority shares.

We have previously posted on the Chancery decision here, and have posted on the Supreme Court oral argument here.

As reported in Law360 [$$], on October 11, 2017 the Delaware Supreme Court heard argument appealing the Chancery Court’s ruling in the ISN Software appraisal case.  We have previously posted on the trial court’s decision here, in which Vice Chancellor Glasscock awarded a premium to the merger price.  The Supreme Court did not rule and did not indicate when it would do so.  You can see the complete oral argument here (under the October 11, 2017, listing; ISN Software v. Ad-Venture Capital).  Unlike the Dell and DFC Global arguments, the Supreme Court did not convene en banc – that is, with a full five-justice proceeding – and instead conducted argument by a three-justice panel, which did not include the Chief Justice.

We will continue to monitor the docket and post when the ruling is issued.

Lexology’s Federal Securities Law Blog has this analysis of the recent article we posted about, the High Cost of Fewer Appraisal Claims.  The author, from Porter Wright in Ohio, notes that the recent data on appraisal claims dispel certain arguments made by the anti-appraisal crowd. In particular, he writes, “Prior to the 2016 amendments, many proponents of limiting appraisal rights argued that shareholders who invoke their appraisal rights negatively affect non-dissenting shareholders; their thought being that buyers in transactions routinely withhold giving their highest, top-dollar bid due to the risk that some of the buyer’s money will have to be used later to defend against appraisal litigation . . . [but], if this theory was true, then deal premiums would have increased after the 2016 amendments.”  The recent research suggests this may not be the case.

The analysis concludes with an appeal to states outside Delaware considering appraisal legislation or that have appraisal laws: “Regardless of sophisticated investors using the appraisal arbitrage strategy, perhaps having expansive appraisal rights actually benefits target shareholders in the long run? Due to the study’s findings, it might be best if other states take a wait-and-see approach to better understand the impact of Delaware’s amendments before they follow suit.”

As reported today in Law360 [$$], the Delaware Supreme Court heard argument yesterday on the chancery court’s ruling in the Dell appraisal case.  The court did not render its decision and did not indicate when it would do so.  We’ll continue to monitor the docket and post when the ruling comes down.

** Note: this law firm is one of the counsel of record in the Dell case.

The Harvard Law School Forum on Corporate Governance and Financial Regulation posted yesterday on Merger Negotiations in the Shadow Judicial Appraisal.  In this post, Professors Brian Broughman, Audra Boone, and Antonio Macias address the explosion in merger litigation over the past decade and present their empirical study testing the competing explanations of the ex-ante effect of appraisal litigation on M&A activity.  As reported in their study, their evidence implies that “appraisal remedies afford important protection for minority shareholders” during their sample period.

As we have posted before, the Delaware Supreme Court rendered its much-awaited ruling in the DFC Global case on August 1. Here’s a more detailed breakdown of the key elements of that ruling.

I. No Judicial Presumption Imposing Mandatory Merger Price Ruling

The Court started off its opinion by rejecting DFC Global’s request to establish “by judicial gloss” a presumption that fair value would be tethered to merger price in certain cases involving an arm’s-length M&A transaction. The Court said that it would “decline to engage in that act of creation, which in our view has no basis in the statutory text, which gives the Court of Chancery in the first instance the discretion to ‘determine the fair value of the shares’ by taking into account ‘all relevant factors.’” The Court adhered to its 2010 ruling in Golden Telecom in finding the statute’s “all relevant factors” inquiry to be broad, and reaffirmed the chancery court’s discretion to undertake that inquiry until such time as the Delaware legislature may choose to revise the statute in this regard (we are not aware of any such legislative activity currently underway).

Continue Reading Breaking Down the Delaware Supreme Court’s DFC Global Decision**

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.

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.

Continue Reading Breaking Down The Clearwire-Sprint Appraisal Ruling