In re Dole Food Co., 2014 Del. Ch. LEXIS 258 (Dec. 9, 2014)
The Delaware Court of Chancery used a recent discovery dispute to reflect on the valuation profession. Its assessment, though not altogether flattering, is a must-read for financial experts.
The case involves an investor strategy known as “appraisal arbitrage.” Two investment firms acquired millions of shares of stock in Dole Food Co. between the time the company announced a take-private merger and closed the transaction. One of the firms also sold Dole stock for a price below the merger price. They then turned around and filed suit alleging the merger price did not adequately represent the value of the stock and petitioned the court for a fair value appraisal. When Dole tried to obtain the firms’ internal prelitigation valuation-related information, the firms refused disclosure. They also advised their respective financial analysts, who had worked up the valuations, not to provide details during their depositions.
Dole sued to compel disclosure. The firms countered that the internal valuations were not admissible information. They did not represent facts but the opinions of lay people. Also, disclosure on valuation was premature before the expert discovery phase. Valuation was exclusively the province of experts.
That’s not how the Chancery viewed it. Although valuation was a topic where expert testimony was “appropriate” and “helpful,” the court said, valuation was not an “esoteric specialty” nor was it “a rare discipline like nuclear physics, brain surgery, or accident reconstruction.” According to the Chancery, “valuation resembles more closely the common skill of driving a car” in that there are professional drivers and your average commuter. While the former have greater abilities and knowledge, the latter still are knowledgeable enough to comment on how a fellow driver handles himself on the road.
There was an irony to the petitioners’ position, the court said, in that “the appraisal statute mandates that a lay individual express the final conclusion of the fair value of the petitioners’ shares.” That “lay individual” was a “law-trained judge.”
To read more about the court’s thinking and outcome of the dispute, click here.