In re DFC Global Corp., 2016 Del. Ch. LEXIS 103 (July 8, 2016).
The whole is greater than the sum of its parts. Perhaps Chancellor Bouchard thought of Aristotle when he recently ruled in a statutory appraisal action that, even though the results of three common valuation techniques were unreliable indicators of value, in combination they established fair value.
The case involved an international payday lender that faced a wall of uncertainty as far as its future was concerned. The problem was impending regulatory changes in key markets: the U.S. and the United Kingdom. Exactly what form the new regulations would take was unclear. Consequently, it was difficult for the company to predict its future performance, assuming the company would continue to exist. The company sold itself to a private equity bidder that knew of the company’s predicament and wanted to exploit it.
Dissenting shareholders petitioned the Delaware Court of Chancery for a fair value determination.
In his analysis, Chancellor Bouchard considered the discounted cash flow method, a multiples-based comparative company analysis, and the transaction price. What undermined the soundness of all valuation methods were the unstable management projections, the Chancellor found.
Find out how the court worked around the problem here.