In 2019, in the Columbia Pipeline statutory appraisal case, the Delaware Court of Chancery found the unadjusted deal price was the best evidence of fair value. The appraisal litigation, however, did not close the case. The contested merger prompted more actions. In a lengthy opinion, the court recently evaluated claims of breach of fiduciary duty filed by a different set of plaintiffs. The court ruled that the new claims were not subject to the fair value determination from the appraisal proceedings and the litigation could proceed.
Background: The contested merger closed in July 2016. The subject was Columbia Pipeline (Columbia), a midstream company that developed, owned, and operated natural gas pipelines and related assets. The buyer was TransCanada Corp. (TC). The deal price was $25.50 per share.
Columbia’s plan to sell itself attracted a number of possible buyers. The new plaintiffs claim that, once TC emerged as a committed bidder, Columbia’s CEO and its CFO favored TC. The plaintiffs say these executives shut out other bidders and prevented the company from developing other alternatives. The executives, who served as key negotiators, had conflicting interests, held meetings with TC without the board’s approval, and made confidential disclosures to TC about the competition. Ultimately, TC was able to take advantage of the executives’ breaches and force the company to accept a lowered bid.
Same facts, different analysis: In the statutory appraisal litigation, the court, after its exhaustive review of the facts surrounding the sales process, acknowledged that aspects of the sales process were problematic. At the same time, the court found the process was sufficiently sound “to make the deal price a persuasive indictor of fair value.”
In the instant litigation, the defendants argued the statutory appraisal rulings should be binding on the plaintiffs in this action and the court should dismiss the plaintiffs’ complaint. After a lengthy discussion of case law and applicable legal theories, the court found the plaintiffs in the fiduciary litigation were not bound by the prior findings.
The appraisal decision was concerned with determining “whether the petitioners had been exploited in the sense of being deprived of what would fairly be given to them in an arm’s-length transaction,” the court noted. The appraisal decision did not evaluate whether the sales process resulted in the best value reasonably available to stockholders, which applies in the fiduciary litigation. The court said the damages remedy the plaintiffs in the fiduciary case could pursue is the difference between the price the stockholders received and the higher amount TC or another bidder would have paid. The court found the complaint supported “a reasonable inference that the stockholders lost out on a higher valued transaction” because of the actions of the executives and TC.
Moreover, the court said, the complaint supported a reasonable inference that the executives “tilted the sales process in favor of TransCanada and against the other bidders so that they could obtain a cash deal that would enable them to retire with the change-in-control benefits. The favoritism that TransCanada received was persistent and substantial.”
The court denied the defendants’ motion to dismiss.
The court’s recent decision is In re Columbia Pipeline Grp., Inc., 2021 Del. Ch. LEXIS 39, 2021 WL 772562 (March 1, 2021).
A digest of the 2019 appraisal decision, In re Appraisal of Columbia Pipeline Grp., Inc., 2019 Del. Ch. LEXIS 303, 2019 WL 3778370 (Aug. 12, 2019), and the court’s opinion are currently available to subscribers of BVLaw.
Extra: In the upcoming May 2021 Business Valuation Update, Gil Matthews (Sutter Securities), a frequent commentator on the Delaware Court of Chancery, provides an extended analysis of the court’s approach to determine value in appraisal proceedings as opposed to fiduciary litigation.