November 15, 2016
Delaware: Process Flaws Mean No Weight to Merger Price in Appraisal
In an appraisal case decided just last week, the Delaware Chancery Court provided another reminder that – even with Corwin providing a path for post-closing business judgment review – process still matters. In Dunmire v. Farmers & Merchants, Chancellor Bouchard was skeptical about the seller’s process:
To start, the Merger was not the product of an auction. No third parties were solicited and no confidential information was disseminated to any other potential buyer. F&M explored the Merger at the instance of the Snyder family, which controlled both F&M and NexTier at the time of the Merger and stood on both sides of the transaction. Although a Special Committee of the F&M board was formed for the ostensible purpose of establishing an independent group to negotiate on behalf of F&M’s minority stockholders, the record does not inspire confidence that the negotiations were truly arms-length.
The Chancellor identified shortcomings in both the composition and functioning of the Special Committee, and noted that the transaction was not subject to a majority of the minority condition. As a result of these & other process flaws, Chancellor Bouchard gave no weight to the $83 merger price in the appraisal proceeding – and awarded the dissenting shareholders $91.90 per share.
– John Jenkins