Chancery Court Holds That Merger Price That Resulted from a Strong Sale Process and Extensive Negotiations Is the Best Estimate of Fair Value in an Appraisal Proceeding
By David Bernstein and Marisa DiLemme
Merlin Partners LP v. AutoInfo, Inc., C.A. No. 8509-VCN (Del. Ch. April 30, 2015) (Noble, V.C.) concerns an appraisal proceeding under Section 262 of the Delaware General Corporation Law in which the Chancery Court found that, where there was a strong sale and negotiation process, and there were no reliable cash flow projections from which to make a discounted cash flow analysis and there were no sales of comparably sized companies in the same business, the price received in the merger was the best indication of fair value at the time of the merger.
Petitioners were former common stockholders of Respondent, AutoInfo, Inc. (“AutoInfo”) who exercised their appraisal rights in connection with AutoInfo’s merger with Comvest Partners (“Comvest”) at a price of $1.05 per AutoInfo share. AutoInfo was struggling financially and had begun a sale process in 2011 using an investment bank, Stephens Inc. (“Stephens”), which had long experience in the applicable industry, transportation. As part of the process, Stephens asked AutoInfo’s management to prepare five year financial projections that were “optimistic” to be used to market AutoInfo. Management had never prepared similar projections before and was doubtful of the validity of the results.