Like so many of the statutory appraisal/entire fairness cases in the Delaware Chancery Court, In re Hanover Direct, Inc. Shareholders Litigation (Sept. 24, 2010) came down to a “battle of experts,” writes Chancellor Chandler in a recent letter opinion. “Unlike most of these cases, however, this decision turns entirely on the fact that one expert’s proffered opinion, for a host of reasons, was totally, completely, unreliable,” Chandler says, referring to the valuation by the petitioner’s expert. One of the most glaring errors: While the respondent’s expert used three different methods—a DCF, comparable companies and comparable transactions analysis, the petitioner’s expert used only one (comparable companies). Chandler writes:
Although there is no single preferred or accepted valuation methodology under Delaware law that establishes beyond question a company’s value, there are commonly accepted methodologies that a prudent expert should use in coordination with one another to demonstrate the reliability of its valuation. If a [DCF] reveals a valuation similar to a comparable companies or comparable transactions analysis, I have more confidence that both analyses are accurately valuing a company.
“In short, the respondent’s evidence of fair value was so convincing, and petitioner’s evidence was so comparatively weak, that the outcome of this case is not in doubt,” the Chancellor concludes. The complete digest of Hanover Direct will appear in the December 2010 Business Valuation Update™ and the court’s letter opinion will be posted at BVLaw™. We are also working with the attorney and appraiser for the respondents on more insights and analysis of the case. Does the DE Chancery really prefer the DCF over any other method? Does its definition of statutory fair value include synergies from an open and robust auction process? Stay tuned. . .