Should we read any greater importance into a recent Chancery decision to rely on the merger price—not the DCF analyses—to establish the fair value of stock at issue? "No," says Jim Alerding (Alerding Consulting). "The purpose of the case was to decide if the petitioners received a fair price for their stock in the merger. Given that purpose, the court’s decision to use the merger price made sense since there was too much uncertainty in both of the expert reports," resulting from the unpredictable income stream of the target's main asset.
He noted that the court faced what it called a “gulf” in proposed values. Therefore, "the logical answer for the court was to say that the ultimate buyer had the right number (i.e. value) based on the information at hand." Alerding is quick to add that the court's approach here "should not be taken as some sort of precedent for valuations as a whole. The solution fit the circumstances of the case, but probably won't fit many others."
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