Appraisal – Page 3 – Delaware Docket

Dell Inc. Fails to Persuade Court That Merger Price was Best Evidence of its Fair Value

Jun 21 2016

In In Re Appraisal of Dell, C.A. No. 9322-VCL, (Del. Ch. May 31, 2016), stockholders of Dell Inc. (“Dell”) sought appraisal of their shares in connection with Dell’s 2013 “go-private” merger. Vice Chancellor Laster of the Delaware Court of Chancery held that the fair value of the Dell’s common stock at the effective time of the merger was $17.62, approximately a 28% premium over the final merger consideration of $13.75 per share. In making its determination, the court rejected Dell’s contention that the negotiated merger consideration was the best evidence of Dell’s fair value and held that the Dell was sold for too little and that the concept of fair value under Delaware law is not equivalent to the economic concept of fair market value.

Chancery Court Holds That Merger Price That Resulted from a Thorough and Vigorous Sale Process Is the Best Indication of Fair Value in Appraisal Proceeding

Oct 26 2015

By Susan Apel and Calvin Kennedy

Merion Capital LP and Merion Capital II LP v. BMC Software, Inc. concerns an appraisal proceeding under Section 262 of the Delaware General Corporation Law in which the Chancery Court found that the deal price generated by the market through a thorough and vigorous sales process was the best indication of fair value.

On September 13, 2013, the petitioners, Merion Capital LP and Merion Capital II LP (together, “Merion”), filed a Verified Petition for Appraisal of Stock pursuant to 8 Del. C. § 262 (the “Appraisal Statute”) against respondent, BMC Software, Inc. (“BMC”). The action stemmed from a merger pursuant to which BMC’s stockholders were cashed out at a price of $46.25 per share (the “Merger”). Merion (who the court noted are “arbitrageurs who bought, not into an ongoing concern, but instead into this lawsuit”) owned 7,629,100 shares of BMC common stock. The Court presided over a four day trial in this matter, at which Merion presented expert testimony claiming that the stock was undervalued and BMC presented expert testimony claiming that the Merger price actually exceeded fair value.

Chancery Court Dismisses Appraisal Challenge Based on Re-Titling of Shares, But Advocates For a Different Approach

Jul 27 2015

By Annette Becker and Lauren Garraux

On July 13, 2015, Vice Chancellor J. Travis Laster issued his Memorandum Opinion in In re Appraisal of Dell Inc. in which he granted Dell’s motion for summary judgment against five institutions which owned Dell common stock and sought appraisal in connection with a going-private merger of the Company which closed in October 2013. Though Vice Chancellor Laster acknowledged that Dell’s motion “must be granted” based on existing Delaware precedent interpreting the requirement that a stockholder who wishes to pursue appraisal “continuously hold[] such shares through the effective date of the merger,” the Vice Chancellor advocated for and urged the Delaware Supreme Court to adopt the federal law approach which, if applied, would allow the petitioners’ appraisal challenge to proceed.

In February 2013, Dell agreed to a merger in which each publicly held share of Dell common stock would be converted into the right to receive $13.75 in cash, subject to the right of stockholders to seek appraisal under Section 262 of the Delaware General Corporation Law (“DGCL”). In July 2013, prior to the vote on the merger, five institutions who owned approximately 922,975 shares of Dell common stock (the “Petitioners” or “Funds”) in street name through their custodial banks caused Cede & Co. (“Cede”), the nominee of the Depository Trust Company (“DTC”) and the entity in whose name the shares were registered, to demand appraisal rights on their behalf .

Chancery Court Denies Specific Performance of Retrospective Drag-Along Right Based on Prospective Terms of Contract and Declines to Decide Whether a Common Stockholder Can Contractually Waive Statutory Appraisal Rights Ex Ante

Mar 05 2015

By Michelle Repp and Marisa DiLemme

Halpin v. Riverstone National, Inc. concerns a group of minority stockholders seeking appraisal despite a “drag-along” provision in a Stockholders Agreement. The Chancery Court found that the “drag-along” provision was not enforceable in this merger situation because the stockholders received notice of the merger only after the transaction had been consummated and the Stockholders Agreement only gave a prospective “drag-along” right, not retrospective.

In Halpin, five minority common stockholders (the “Minority Stockholders”) of Riverstone National, Inc., a Delaware corporation (“Riverstone”), sought appraisal of their shares after a June 2014 merger of Riverstone with a third party. The merger was approved by the written consent of Riverstone’s 91% controlling stockholder, CAS Capital Limited (“CAS”), on May 29, 2014. Riverstone counterclaimed against the Minority Stockholders and sought summary judgment in its favor on the appraisal claims based on a stockholders agreement (the “Stockholders Agreement”) between Riverstone and the Minority Stockholders entered into in 2009 that included a drag-along obligation of the Minority Stockholders. The Chancery Court, ruling on the parties’ cross-motions for summary judgment, granted the Minority Stockholders’ motion and denied Riverstone’s motion.

Chancery Court Finds that Deal Price Represents Fair Value of Shares in Appraisal Proceeding

Feb 02 2015

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.

In re Appraisal of Ancestry.com, Inc., C.A. No. 8173-VCG (Del. Ch. January 30, 2015)(Glasscock, V.C.)

Chancery Court Confirms Standing of Record Holder as of Appraisal Demand Date to Pursue Appraisal

Jan 07 2015

By David Bernstein and Meredith Laitner

In Merion Capital LP v. BMC Software, Inc., the Chancery Court held that a person who became the record owner of shares after the record date for voting on a merger could seek appraisal with regard to those shares so long as that person did not vote the shares in favor of the merger, without having to demonstrate that the shares had not been voted in favor of the merger by a prior record owner.

On January 5, 2015, the Delaware Chancery Court issued its ruling in Merion Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG (Del. Ch. January 5, 2015) (Glasscock, V.C.), finding that petitioner Merion Capital LP had standing to seek an appraisal with regard to shares of which it became the record owner after the record date for voting on a merger without having to prove that those shares had not been voted in favor or the merger.

Chancery Court Confirms Beneficial Owner’s Standing to Pursue Appraisal Action

Jan 06 2015

By David Bernstein and Meredith Laitner

Amid debates around the merits of “appraisal arbitrage,” the Chancery Court held in In re: Appraisal of Ancestry.com, Inc. that the hedge fund petitioner did not need to prove that the Ancestry.com shares of which it became the beneficial owner after the record date for voting on an Ancestry merger had not been voted in favor of the merger in order to pursue appraisal rights with regard to those shares. The Court said any problems with DGCL Section 262 itself should be solved by the legislature, not the courts.

On January 5, 2015, the Delaware Chancery Court issued its ruling in In re: Appraisal of Ancestry.com Inc., C.A. No. 8173-VCG (Del. Ch. January 5, 2015) (Glasscock, V.C.), finding that petitioner Merion Capital L.P., the beneficial owner of Ancestry.com, Inc. shares, did not need to prove that the specific Ancestry shares with respect to which petitioner seeks appraisal were not voted in favor of an Ancestry merger in order to have standing to seek appraisal.

Valuation Materials Prepared Pre-litigation by Appraisal Petitioners Are Discoverable

Dec 12 2014

By Eric Freedman and Sophia Lee Shin

FACTS

On June 11, 2013, Dole Food Company, Inc. (“Dole”) announced that its board had received an unsolicited proposal from David Murdock, Dole’s CEO, Chairman, and controlling stockholder, to purchase all of the outstanding shares of Dole’s common stock for $12 per share. Approximately two months later, Dole and Murdock announced an agreement to take Dole private in a merger at $13.50 per share (the “Merger”). On October 31, 2013, Dole held a special meeting of the stockholders at which the stockholders approved the Merger, and the transaction closed on November 1, 2013.

Hudson Bay Master Fund Ltd. and Hudson Bay Merger Arbitrage Opportunities Master Fund Ltd. (together, “Hudson Bay”) and Ripe Holdings LLC (“Ripe”), as holders of Dole common stock, subsequently sought an appraisal for their shares. Ripe is a special-purpose investment vehicle managed by the affiliates of Fortress Investment Group (“Fortress”).

Mehta v. Smurfit-Stone Container Corp., C.A. No. 6891-VCL (October 20, 2014) (Laster, V.C.)

Oct 27 2014

By Scott Waxman and Caitlin Howe

Pro se plaintiffs, Ram and Neena Mehta (the “Mehtas”), owned common stock of defendant Smurfit-Stone Container Corporation (“Smurfit”), which, after reorganizing in a Chapter 11 bankruptcy, merged with a wholly-owned acquisition subsidiary of Rock-Tenn Company (“Rock-Tenn Sub” and “Rock-Tenn Parent”, respectively). The Mehtas challenged (i) decisions leading to Smurfit’s bankruptcy, (ii) the merger with Rock-Tenn Sub, and (iii) Rock-Tenn Sub’s failure to pay the Mehtas the merger consideration from the Rock-Tenn Sub/Smurfit merger. The defendants moved to dismiss the Mehtas’ claims for failure to state a claim, and Vice Chancellor Laster granted the defendants’ motion with respect to claims (i) and (ii); however, claim (iii) survives, with the caveat that the Mehtas are not entitled to indirect or consequential damages.

On June 21, 2010, Smurfit emerged from a Chapter 11 bankruptcy, having cancelled and re-issued 95% of its stock to its former creditors and the remainder to its shareholders, including the Mehtas who owned 1,486 shares after the reorganization. Less than six months later, Smurfit and Rock-Tenn Parent announced their plans for a merger for cash and Rock-Tenn Parent stock consideration. The Mehtas timely filed a demand for appraisal, and the merger was subsequently consummated. However, the Mehtas eventually withdrew their demand and never filed a petition for appraisal. The Mehtas did not receive any merger consideration.

In re Orchard Enterprises, Inc. Stockholder Litigation, Consolidated C.A. No. 7840-VCL

Aug 29 2014

By Scott Waxman and Porter Sesnon

On August 22, 2014, Vice Chancellor Laster approved a fee award for counsel to certain plaintiff-stockholders related to a settlement of a class action claim alleging breaches of fiduciary duties related to a freeze-out merger. The settlement amounted to $10.725 million. In the same opinion, V.C. Laster denied a fee award due to lack of standing to counsel for other stockholders in the same freeze-out merger, who separately litigated an appraisal claim, and which was relied upon by the successful class action plaintiffs.

Catagory:Appraisal