The Delaware statutory fair value standard expressly excludes any “element of value arising from the accomplishment or expectation of the merger," writes Professor Stephen Bainbridge (UCLA School of Law) in a recent blog. “Does that language make control premia irrelevant?” he asks. More importantly, in tracking Delaware decisions from the well-known Weinberger and Technicolor cases to the more recent Gearreald v. Just Care, Inc. (noted in last week’s BVWire), Bainbridge believes that “appraisal is now a crap shoot in which one can end up with less than the price offered in the merger.”
Consider: If the statutory fair value standard must exclude synergies, then “why would the target ever have a higher value as a going concern post-merger than pre-merger?” Bainbridge asks. Can you really square the use of market-comparable valuation method with the need to exclude synergies? And how does one credibly measure the amount of synergies to be backed out of the value?
In the end, Bainbridge questions why any “sane investor” would invoke appraisal rights when they seem to directly conflict with modern economic realities and serve no “useful purpose.” In fact, the law governing appraisal rights “appears to be broken,” he says, with the Delaware courts just “making this stuff up as they go along,” so that “perhaps the best thing to do would be to toss out current law in its entirety and start over with a blank sheet of paper.”