Court of Chancery disregards deal price where sales process is not ‘Dell compliant’


In re AOL Inc., 2018 Del. Ch. LEXIS 63 (Feb. 23, 2018)

Recent rulings from the Delaware Supreme Court make it seem as if the discounted cash flow analysis has lost its top ranking among valuation methodologies in statutory appraisals involving publicly traded companies. Not exactly. Recently, the Court of Chancery agreed with the parties’ experts that the DCF was the best evidence of fair value where the merger process was problematic.

As we reported earlier, in DFC Global and Dell, the Delaware Supreme Court overturned decisions from the Court of Chancery that gave insufficient or no weight to the transaction price. In extolling the deal price, the state high court has said that “the collective judgment of the many” is a more reliable gauge of a stock’s value than a single analyst’s DCF, especially when that analyst provides an opinion in a litigation setting. It has urged the Court of Chancery to give great, if not exclusive, weight to the deal price, if the target company’s stock traded in an efficient market and the evidence points to an arm’s-length sale. Disregarding the deal price in those circumstances is “hazardous,” the high court said in DFC Global.

The recent Court of Chancery case arose out of the AOL-Verizon merger, which closed in June 2015. In adjudicating the dissenting shareholders’ request for statutory appraisal, the court specially asked whether the sales process was “Dell compliant.” It provided criteria for what “Dell compliant” meant. The answer to this question would determine whether the court would credit the deal price and, if so, to what extent.

The Court of Chancery ultimately decided it could not ascribe any weight to the deal price.

Find out more about the court’s analysis here.


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