Theodore N. Mirvis, William Savitt, and Ryan A. McLeod are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell publication by Mr. Mirvis, Mr. Savitt, Mr. McLeod, and Nicholas Walter, and is part of the Delaware law series; links to other posts in the series are available here.
A recent spate of appraisal decisions signals that the Delaware courts will be skeptical of claims that the “fair value” of a company’s stock, as determined in a judicial proceeding brought by a dissenter from the merger, will be higher than the price paid in the transaction. To the contrary, in the context of strategic transactions—which may include synergy value to which dissenting stockholders are not entitled under the appraisal statute—Delaware has made clear that the appraised value may well be less than the deal price.
These decisions follow the important and welcome rulings of the Delaware Supreme Court in DFC and Dell last year. DFC and Dell were the high court’s first detailed appraisal guidance in several years. In DFC, the Supreme Court stressed the significance of “real world evidence” and held that the Court of Chancery should defer to the market’s view of value rather than a “guess” by a valuation expert hired by a party to the litigation. In Dell, the Supreme Court reiterated these points and strongly suggested that the price paid by a third party in a transaction should act as a ceiling in an appraisal valuation: “Fair value entails at a minimum a price some buyer is willing to pay—not a price which no class of buyers in the market would pay.”