August 2017
Further Clarification from Delaware Supreme Court on Deal Price in Statutory Appraisal Actions

The Delaware Supreme Court offered further guidance this week on the weight to be accorded a negotiated deal price in the context of shareholder appraisal litigation,1 which of course is important to businesses and counsel involved in M&A transactions that may be subject to judicial review. DFC Glob. Corp. v. Muirfield Value Partners LP, No. 518, 2016 (Del. en banc, Aug. 1, 2017). Important take-aways include:

The Supreme Court emphatically declined to adopt a “presumption that in certain cases involving arms’-length mergers, the price of the transaction giving rise to appraisal rights is the best estimate of fair value.”

With reference to the specific record before it, the Supreme Court also held, however, that it was improper to accord lesser weight to the deal price based solely on perceived instabilities in the market that, according to the Court of Chancery below, may have undermined the reliability of the market’s assessment of value.

The Supreme Court rejected a “private equity carve-out,” whereby a deal price negotiated by a financial (rather than a strategic) buyer may be deemed less reliable due to the particular focus and objectives of such buyers.

Thus, while rejecting a judicial presumption that under the right circumstances the deal price must be regarded as the “exclusive” indication of fair value, the Supreme Court’s opinion in DFC Global reinforces the considerable weight potentially accorded to the transaction price, where that transaction came by way of an arm’s-length process and a robust bidding environment.

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