Tag: Discounted Cash Flow

Delaware Chancery Court Parses Valuation Methods in Battle of the Experts

By: David L. Forney and Zane A. Madden

In William Richard Kruse (the “stockholder”), v. Synapse Wireless, Inc. (the “Company”), C.A. No. 12392-VCS (Del. Ch. July 14, 2020), the Delaware Court of Chancery (the “Court”) held that, after its review of the evidence as factfinder, the Company had carried its burden of proving a reliable appraisal of its fair value related to its 2016 merger transaction. As is typical in appraisal disputes, each party’s expert presented wildly different valuations. In this lengthy case, the Court nevertheless analyzed each proposed valuation model on its own merits and did not engage in compromise jurisprudence in order to achieve a sense of fairness for one party. In coming to its conclusion, the Court adopted the Company’s discounted cash flow valuation method, eschewing all other methods as unreliable in this case. The Court’s value was almost half of the merger transaction value upon which the stockholder exercised its appraisal rights.

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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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Delaware Court of Chancery Holds Deal Price Generated Through Reliable Sales Process Was Fair Value

By: Shoshannah D. Katz and Serena M. Hamann

In the statutory appraisal proceeding, In re Appraisal of Columbia Pipeline Group, Inc., Cons. C.A. No. 12736-VCL (Del. Ch. August 12, 2019), the Delaware Court of Chancery determined that the fair value of Columbia Pipeline Group, Inc. (“Columbia” or the “Company”) common stock at the effective date of acquisition by TransCanada Corporation (“TransCanada”) was the deal price of $25.50 per share, not the $32.47 per share price proposed by the petitioners. The petitioners argued that the Court should determine fair value using the discounted cash flow method (“DCF”), while TransCanada proposed use of the deal price minus synergies and Columbia’s unaffected trading price as valuation indicators. The Court ruled the sale process in this case was sufficiently reliable to make the deal price a persuasive indicator of fair value.

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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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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

In Statutory Merger Appraisal Proceeding, Chancery Court, Using Discounted Cash Flow Analysis, Finds Fair Value of Shares to be Below Merger Transaction Price

By Eric E. Freedman and H. Corinne Smith

In In Re Appraisal of SWS Group, Inc., C.A. No. 10554-VCG (Del. Ch. May 20, 2017), the Delaware Court of Chancery, applying discounted cash flow analysis in a statutory appraisal proceeding, determined that the fair value of the stock of SWS Group, Inc. (“SWS”) at the time of its January 2015 merger was $6.38 per share. SWS stockholders had received a mix of cash and stock worth $6.92 per share in the merger transaction. As a result, the valuation determined by the Court in the appraisal proceeding represented a significant discount from the price paid in the merger.

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