Our item on In re Sunbelt Beverage Corp. Litigation, 2010 WL 92519 (Jan. 5, 2010) in last week’s BVWire™ provoked a slew of inquiries and comments. The case “has got all kinds of tidbits,” writes Nancy Fannon, including the Delaware Chancery Court’s views on size premia, company-specific risk premia, and the exclusion of a post-merger S Corp conversion from its valuation. (“Don’t get me started!” Fannon says.)
“Boy, what a fascinating case,” agrees Neil Beaton, after plowing through the lengthy opinion, which pits a well-known appraiser against a Harvard Business School corporate finance professor. (Hint: “Courts like teachers,” Fannon observes, “they teach.”)
Don’t try a CSR in Delaware. The court did not like the “rush job” on the fairness opinion, provided by a financial firm just one week prior to the merger. As Jeffrey Tarbell notes, “the criticism of a financial advisor ‘rushing’ their analysis at their client's demand is nothing new. But it illustrates the need for fairness opinion issuers to be familiar with relevant case law and what the Chancellors like and don't like. Appraisers and investment bankers should also take heed, if they don’t already, that company-specific risk premiums won't fly in Delaware.”
Finally, “one thing that really strikes me is that as chief litigation officers and their outside counsel are feverishly working to control costs, and [legal organizations and societies] are working so hard to try to find ways to reduce the madness of the discovery process, decisions like this make it crystal clear that those efforts notwithstanding, experts not only can’t cut costs, they have to double their efforts to provide the information the court is demanding,” says Fannon. “Vetting the transactions in this manner is simply a cost that many litigants have not been willing to absorb.”
We’ve just posted the case digest as our latest free download. Comments welcome. Does the selection of the size premium from Ibbotson data really pose a problem in circularity? And what about the company-specific risk premium: Does it have a future in Delaware—or any other major forum? Are the judges really looking for better, empirically based data—or do they essentially believe the CSRP adjustment is redundant? Email the editor and we’ll continue the discussion…
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