With the landmark rulings in DFC Global and Dell, the Delaware Supreme Court has given its “full-throated endorsement” of market efficiencies by declaring the deal price (minus synergies) a strong indicator of statutory fair value, say two new statutory appraisal opinions from the Court of Chancery. Emphasizing efficiencies, one ruling finds the transaction was “Dell Compliant,” the other finds it wasn't. Therefore, the court relies on its own DCF analysis.
The deal and the DCF as ‘reality checks’: In In re Solera Holdings, Inc., Chancellor Bouchard (who wrote the original DFC Global opinion), calls the Supreme Court decisions “transformative.” Together, they “caution against” relying on discounted cash flow (DCF) models adversarial experts prepare when reliable market indicators reveal an objective, third-party transaction price. Given Solera’s open, arm’s-length buyout, the Court of Chancery rejected the “dueling” DCFs, particularly when: (1) the company’s expert, who deferred to a deal-minus-synergies price and used his own DCF as a reality check, gave it no weight, due to uncertain inputs; and (2) the plaintiffs’ expert relied solely on his “facially incredible” DCF, ignoring the sales price entirely.
Although the DFC Global and Dell cases embrace the deal price as a “strong indicator of fair value,” says Vice Chancellor Slights in Blueblade Capital LLC v. Norcraft Cos., the Delaware Supreme Court did not rule it mandatory. Given “significant flaws” in the merger process here, the deal price served only as a “reality check” for the court, which deferred to “traditional” DCF methodology. But, since neither party’s expert had “walked the high road” in his DCF journeys, the court borrowed the most credible components from each expert's analysis to craft a DCF valuation that ultimately awarded a 2.5% premium above the deal price.
Stay tuned: In their analysis, both jurists also grapple with the Court of Chancery’s recent decisions in Aruba and AOL, which may yet find their way to appeal in the state Supreme Court.
The cases are In re Appraisal Solera Holdings, Inc., 2018 Del. Ch. LEXIS 256 (July 30, 2018), and Blueblade Capital Opportunities, LLC v. Norcraft Cos., 2018 Del. Ch. LEXIS 255 (July 27, 2018). Digests and the courts’ opinions for both decisions will be available soon at BVLaw.