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In re Multiplan Corp. Stockholders Litig.

This case dealt with a motion to dismiss the claims of the plaintiffs (by the defendants) in a stockholder suit against a special purpose acquisition company (SPAC). The claims were primarily that the plaintiffs’ claims were derivative, which failed to plead demand futility and that the business judgment rule applied. Many of the parties’ arguments centered around unique characteristics of a SPAC. In concluding that the entire fairness standard of review applied, the Delaware Chancery Court noted that “the fact that a reasonably conceivable impairment of public stockholders’ redemption rights—in the form of materially misleading disclosures—has been pleaded in this case.” The case was to go forward against all but two defendants.

Delaware Chancery Court Allows Breach of Fiduciary Suit to Move Forward on a SPAC

This case dealt with a motion to dismiss the claims of the plaintiffs (by the defendants) in a stockholder suit against a special purpose acquisition company (SPAC). The claims were primarily that the plaintiffs’ claims were derivative, which failed to plead demand futility and that the business judgment rule applied. Many of the parties’ arguments centered around unique characteristics of a SPAC. In concluding that the entire fairness standard of review applied, the Delaware Chancery Court noted that “the fact that a reasonably conceivable impairment of public stockholders’ redemption rights—in the form of materially misleading disclosures—has been pleaded in this case.” The case was to go forward against all but two defendants.

Cont'l Investors Fund LLC v. TradingScreen Inc.

The defendant did not breach its redemption agreement because a committee of directors, “properly engaged in the judgment-laden task of determining the amount of funds that the company could use for redemptions … [and] determined that using a greater amount of cash to redeem more shares threatened the company's ability to continue as a going concern.” As a result, interest on the asserted obligation back to 2013 was not allowed at 13%, the amount per the agreement.

Company Did Not Breach Its Redemption Agreement Because of Diligence of Directors

The defendant did not breach its redemption agreement because a committee of directors, “properly engaged in the judgment-laden task of determining the amount of funds that the company could use for redemptions … [and] determined that using a greater amount of cash to redeem more shares threatened the company's ability to continue as a going concern.” As a result, interest on the asserted obligation back to 2013 was not allowed at 13%, the amount per the agreement.

Virginia court nixes challenge to appraisal done according to valuation agreement

In the category of buyout disputes notwithstanding a valuation agreement, a recent Virginia case stands out for showing the evidentiary hurdle a challenger must overcome to defeat a third-party appraisal done in accordance with a controlling agreement.

BVLaw case update: buyout disputes

Even when the members of a business entity plan ahead for a potential buyout, a lot can still go wrong, often because the language in a controlling shareholder agreement leaves too much room for interpretation or a necessary corporate document is missing.

Lynd v. Marshall County Pediatrics, P.C.

In share redemption dispute pivoting on missing shareholder agreement, high court finds corporate bylaws show trial court’s use of book value to value separating member’s stock was error but plaintiff failed to show right to fair value determination as a matter of law; court remands.

In Share Redemption Case, Bylaws Militate Against Book-Value Valuation

In share redemption dispute pivoting on missing shareholder agreement, high court finds corporate bylaws show trial court’s use of book value to value separating member’s stock was error but plaintiff failed to show right to fair value determination as a matter of law; court remands.

Hornberger v. Dave Gutelius Excavating, Inc.

Valuation of shares of terminated stockholder based on shareholder agreement that requires calculation of adjusted net book value and specified adjustments may include discounts, where discounts are consistent with industry practice, appellate court says.

Industry Practice Supports Discounts in Stock Redemption Valuation

Valuation of shares of terminated stockholder based on shareholder agreement that requires calculation of adjusted net book value and specified adjustments may include discounts, where discounts are consistent with industry practice, appellate court says.

Tax Court's Koons decision withstands appeal: DLOM ruling anchors valuation

The 11th Circuit recently affirmed a four-year-old Tax Court valuation of a revocable trust’s interest in a limited partnership. The linchpin in the valuation was the marketability discount.

Manipulation of Valuation of Bequeathed Stock Sinks Charitable Contribution Claim

Tax Court says executor of estate in series of post-death measures changed the value and size of decedent’s stock donation and may not claim date-of-death value of assets not actually transferred to family foundation; court affirms estate tax deficiency.

Estate of Dieringer v. Commissioner

Tax Court says executor of estate in series of post-death measures changed the value and size of decedent’s stock donation and may not claim date-of-death value of assets not actually transferred to family foundation; court affirms estate tax deficiency.

Court Finds Facts Back Expert’s Value-Per-Subscriber Metric

Court finds trust failed to prove insolvency; its expert’s use of DCF alone was inappropriate where there were no cash flow projections untainted by fraud, but competing expert’s market-based approach and value per subscriber analysis were solid.

Adelphia Recovery Trust v. FPL Group, Inc. (In re Adelphia Corp.)

Court finds trust failed to prove insolvency; its expert’s use of DCF alone was inappropriate where there were no cash flow projections untainted by fraud, but competing expert’s market-based approach and value per subscriber analysis were solid.

Shiftan v. Morgan Joseph Holdings, Inc.

In merger-related appraisal action Del. Chancery agrees with petitioning shareholders that fair value assessment of company as going concern must include the redemption value provided for in the original Certificate of Incorporation.

Dawyot v. Catawba Capital Mgmt., Inc.

In buyout dispute, court sets aside third-party appraisal performed pursuant to redemption agreement; court says final appraisal report contains at least one “palpable error” related to normalization of earnings that had a significant effect on the valuation; appraiser did not testify at trial.

9th Circuit Affirms Tax Court; Noncompete Must Be Amortized Over 15 Years, Not Life of Agreement

Redemption was an “acquisition” within the meaning of IRC section 197 because Frontier regained possession and control over 75% of its stock.

Redemptions of ESOP Shares Were Deductible Dividends

The question of whether the distributions to plan participants are deductible dividends depends on who owned the convertible preferred stock when the redemptions took place.

Frontier Chevrolet Co. v. Commissioner

Issue is whether company's redemption of 75% of its stock was an “acquisition” within the meaning of IRC section 197, and whether the covenant not to compete needed to be amortized.

Boise Cascade Corp. v. United States

Issue is whether distributions to ESOP plan participants are deductible dividends.

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