Topic: Valuation

Court of Chancery Analyzes LLC Valuation Reports in Connection With Breach of Fiduciary Duty

By: Scott Waxman and Zack Sager

In Zachman v. Real Time Cloud Services, LLC, the Delaware Court of Chancery analyzed competing expert reports valuing a Delaware limited liability company in connection with a breach of fiduciary duty claim.  The Court also denied motions to exclude a valuation report and for sanctions relating to discovery abuses, and denied the Delaware limited liability company’s counterclaims for conversion and tortious interference with contract.

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Chancery Court Calls Plaintiffs’ Bet by Granting in Part and Denying in Part Partial Motion to Dismiss Breach of Fiduciary Duty Claims in Case Alleging Failure to Disclose Material Facts and Structuring a Transaction for Defendants’ Personal Financial Benefit

By Joanna Diakos and Alidad Vakili

The Delaware Court of Chancery granted in part and denied in part Plaintiff’s partial motion to dismiss, finding that the standard for breach of fiduciary duty was not met as against certain directors and officers of the Company based on allegations they failed to disclose facts relating to a tender offer, but was met as against the directors and one of the officers on allegations that they approved a tender offer where they were expected to receive a personal financial benefit.

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IN A SECTION 262 APPRAISAL RIGHTS PROCEEDING, CHANCERY COURT ACCEPTS A MODIFIED VERSION OF PETITIONERS’ VALUATION OF A MERGING COMPANY’S STOCK

By: Christopher Bellavia and Adam Heyd

In Manichaean Capital, LLC, et al. v. SourceHOV Holdings, Inc., C.A. No. 2017-0673-JRS (Del. Ch. January 30, 2019), certain minority stockholders of a merging company filed a petition with the Delaware Court of Chancery (the “Court”) to exercise their appraisal rights under Section 262 of the Delaware General Corporate Law (“Section 262”). After reviewing competing valuations prepared by experts of the Company and the minority stockholders respectively, the Court adopted a modified version of the minority stockholders’ expert valuation. In doing so, the Court reiterated its significant discretion to discharge its independent obligation to determine fair market value and instead select one of the parties’ valuation models as a guide.

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Court of Chancery Finds Deal Price Exceeded Fair Value, but Company Nonetheless Not Entitled to Refund for Prepayment of Deal Price to Dissenting Stockholders

By: Eric Freedman and Serena Hamann

In a memorandum opinion in the case of In re Appraisal of Panera Bread Company, C.A. No. 2017-0593-MTZ (Del. Ch. Jan. 31, 2020), the Delaware Court of Chancery ruled that deal price, minus the value of synergies, was the correct metric to value the stock of Panera Bread Company (“Panera”), because the process that yielded the deal price bore sufficient objective indicia of reliability. The Court found that under this metric, the dissenting stockholders received more than fair value for each share of Panera stock but that nonetheless, because Panera prepaid the entire deal price to dissenting stockholders without deducting any value for synergies, and did not negotiate a clawback, Panera had no right to a refund under the appraisal statute, Delaware General Corporation Law (“DGCL”) § 262.

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rejecting a suit seeking a 43.9% higher payout, the delaware chancery court declared that the $18 per share price paid for stillwater was the fair value.

By Scott E. Waxman and Pouya Ahmadi

In In Re: Appraisal of Stillwater Mining Company, Consol. C.A. No. 2017-0385-JTL (Del. Ch. Aug 21, 2019), the Delaware Court of Chancery (the “Court”) held that the fair value of Stillwater Mining Company (“Stillwater”) at the time of its acquisition through a reverse triangular merger with Sibanye Gold Limited (“Sibanye”) was $18 per share, equal to the merger consideration.

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VALUING A CONSULTING FIRM AFTER A KEY PERSON DEPARTURE

By Scott E. Waxman and Annamarie C. Larson

In a post-trial Memorandum Opinion, Neil Smith and NTS, LLC v. Promontory Financial Group, LLC and Promontory Growth and Innovation, LLC, C.A. No. 11255-VCG (Del. Ch. April 30, 2019), the Delaware Court of Chancery rejected both the asset accumulation and the discounted cash flow methods of valuation, instead adopting the buyout value the parties tentatively negotiated prior to the key person’s departure. 

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Know Thyself: Self-Awareness in Corporate Valuations

By: Annette Becker and Kristen Berry

In Kendall Hoyd and Silver Spur Capital Partners, LP v. Trussway Holdings, LLC (C.A. No. 2017-0260-SG), the Delaware Court of Chancery (the “Court“) addressed the perennial challenges related to corporate valuations. The central question involved the determination of a corporation’s proper price-per-share in the context of an appraisal action arising from the conversion of a corporation into an LLC by merger. The Court rejected the use of “comparable companies” and “precedent transaction” analyses, defaulting to the use of discounted cash flow (DCF) analyses in the formulation of its corporate valuation.

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Chancery Court Cites Flawed Process in its Resort to Traditional Valuation Methodology and Reliance on All Relevant Factors in a Recent Appraisal Action

By Jill B. Louis and Rashida Stevens

The Delaware Court of Chancery determined that a flawed deal process kept the merger price from being a reliable indication of value in the Blueblade Capital Opportunities LLC and Blueblade Capital Opportunities CI LLC (collectively, “Blueblade”) v. Norcraft Companies, Inc. (“Norcraft”) (C.A. No. 11184-VCS (Del. Ch. July 27, 2018)), appraisal action.

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CHANCERY COURT SETS FAIR VALUE IN APPRAISAL ACTION AT DEAL PRICE LESS SYNERGIES

By: Annette Becker and Caitlin Velasco

In In re Appraisal of Solera Holdings, Inc., C.A. No. 12080-CB (Del. Ch. July 30, 2018), the Delaware Court of Chancery, applying an adjusted deal price analysis in a statutory appraisal proceeding, determined that the fair value of the stock of Solera Holdings, Inc. (“Solera” or the “Company”) at the time of its March 2016 going-private merger transaction was $53.95 per share–the deal price less estimated synergies. The Court reached this conclusion after thoroughly examining and ultimately rejecting the use of (a) the discounted cash flow (“DCF”) analysis, proposed by seven investment funds that were former stockholders of Solera (the “Petitioners”) and the (b) the unaffected market price analysis, proposed by Solera in supplemental briefing in response to the use of such analysis in Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., C.A. No. 11448-VCL (Del. Ch. May 21, 2018). Read More

MEMBER ENTITLED TO FAIR VALUE OF INTEREST UPON FORCED WITHDRAWAL

By Scott E. Waxman and Annamarie C. Larson

In Domain Associates, L.L.C. et al. v. Nimesh S. Shah (C.A. No. 12921-VCL), Vice Chancellor Lastor held that, in the absence of clear language in the limited liability company agreement, a withdrawn member of a venture capital fund’s management company is entitled to the fair value of his or her member interest, not simply the amount of the member’s capital account.

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CHANCERY COURT SETS FAIR VALUE IN APPRAISAL ACTION BELOW THE VALUATIONS SUGGESTED BY THE PARTIES

By: Scott Waxman and Benjamin Kendall

In Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., C.A. No. 11448-VCL (Del. Ch. May 21, 2018), the Delaware Court of Chancery denied a motion for reargument of its earlier decision setting the appraisal value of the shares of Aruba Networks, Inc. (“Aruba” or the “Company”) at the time of its acquisition by Hewlett-Packard Company (“HP”).  Although the merger agreement offered $24.67 per share of the Company, and the Company ultimately suggested that the fair value of the Company’s shares was $19.75, the Court of Chancery set the fair value of the Company’s shares at $17.13. In denying the motion for reargument, the Court of Chancery reiterated its position that the trial court must independently determine the fair value of the shares in an appraisal proceeding and that the market price of a publicly traded firm can itself be an accurate measurement of fair value.

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CHANCERY COURT NULLIFIES DISSOLUTION OF LIMITED LIABILITY COMPANIES FOR FAILURE TO SET ASIDE A RESERVE TO SATISFY KNOWN CLAIMS

By: Scott E. Waxman and Calvin D. Kennedy

In Kevin Capone and Steven Scheinman v. LDH Management Holdings LLC, et al., C.A. No. 11687-VCG (Del. Ch. April 25, 2018), the plaintiffs, Kevin Capone (“Capone”) and Steven Scheinman (“Scheinman”), and the defendants, LDH Management Holdings LLC (“Management Holdings”), LDHMH MM, LLC (together with Management Holdings, the “LLCs”), Castleton Commodities International LLC (f/k/a Louis Dreyfus Highbridge Energy LLC (“LDH”)) and certain members of the Board of Directors of LDH, each moved for summary judgment regarding the plaintiffs’ claim that the defendants violated Delaware law by cancelling the LLCs without setting aside a reserve for the plaintiffs’ breach of contract claims.  The court granted the plaintiffs’ motion for summary judgment and held that the defendants were aware of the plaintiffs’ non-frivolous claims for breach of contract against the LLCs and, therefore, the defendants acted in violation of Delaware law when they failed to create a reserve to cover the plaintiffs’ claims when the LLCs were dissolved.

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