Chancery Court Finds that Deal Price Represents Fair Value of Shares in Appraisal Proceeding
By David Bernstein and Meredith Laitner
In response to demands for appraisal of Ancestry.com shares, the Chancery Court found that the agreed upon merger price, which was greater than the price determined by the Court’s discounted cash flow analysis, represented the fair value of the shares.
On January 30, 2015, the Delaware Chancery Court in In re: Appraisal of Ancestry.com, Inc., C.A. No. 8173-VCG (Del. Ch. January 30, 2015) (Glasscock, V.C.) issued its determination as to the fair value of shares held by petitioners at the time of Ancestry’s acquisition by Permira Advisors. Ancestry stockholders received merger consideration of $32 per share; petitioners in this case sought appraisal under Section 262 of the Delaware General Corporation Law.
In an appraisal proceeding, because neither the petitioner nor the respondent has a burden of proof, the burden falls on the Court to establish fair value. The Court said that the statute requires it to consider all relevant factors, and while the agreed upon price is one of the relevant factors, the Court must go beyond that.
With respect to sale itself, the Court found Ancestry’s auction process sufficiently robust to make the price it generated a reliable and relatively untainted indicator of value. However, it also made its own discounted cash flow analysis, after dissecting discounted cash flow analyses presented by petitioners’ and Ancestry’s experts, whose valuations differed significantly. Among other things, Vice Chancellor Glasscock found the experts’ analyses problematic because they were based on projections prepared by Ancestry’s management for the purpose of selling the company and for the purpose of making it possible to obtain a fairness opinion with regard to the price a buyer was likely to pay. In the end, Vice Chancellor Glasscock came up with a discounted cash value that was slightly below the agreed upon merger price. He then ruled that the sale price (i.e., the merger price) best represented the fair value, and said his discounted cash value analysis gave him comfort that no undetected factor skewed the sale process. It is noteworthy that if the Vice Chancellor had determined that the value of the Ancestry shares was the value yielded by his discounted cash flow analysis, the petitioners would have received less than the price paid in the merger.