July 24, 2017

Appraisal: Chancery Says “Fair Value” 50% Below Merger Price!

On Friday, the Delaware Chancery Court issued its ruling in the Clearwire appraisal proceeding. Despite a complex and far from pristine process, Vice Chancellor Laster rejected the plaintiff’s breach of fiduciary duty claims & concluded that the merger was entirely fair.  Moreover, he found that purchase price was more than twice the target’s “fair value”!

In addition to addressing the appraisal claim, Vice Chancellor Laster’s 95-page opinion includes a lengthy review of the fairness of the process that culminated in the company’s merger with Sprint, & the price shareholders received in the deal. While the fight in appraisal cases has usually focused on whether the merger price should serve as the basis for a fair value decision, that wasn’t the case here.  Neither party in the case sought to establish the merger price as fair value, and the court instead turned to competing DCF analyses from the parties’ experts.

Here’s an excerpt from a Reuters article on the case – and on Aurelius Capital Management’s very bad day:

A Delaware judge ruled Friday that wireless carrier Clearwire Corp was sold in 2013 for more than twice its fair value, a decision that dealt a stinging loss to the Aurelius Capital Management hedge fund which spent years battling to prove Clearwire was vastly underpriced.

Sprint Corp acquired Clearwire in 2013 after a bidding war with Dish Network Corp pushed the price to $5 per share, valuing Clearwire at about $14 billion. After Clearwire shareholders approved the deal, an affiliate of Aurelius that had opposed the Sprint acquisition brought what is known as an appraisal action, asking a judge to determine fair value of the stock.

The affiliate had sought $16.08 for each of its 25 million shares, or about $400 million. Vice Chancellor Travis Laster on Friday sided with Clearwire, which had said the fair price was $2.13 per share, or about $53 million for the fund’s stock. Aurelius will also collect interest.

Delaware courts have rarely found “fair values” in appraisal proceedings that are below the merger price – but this case represents the second such decision in the last 60 days.

John Jenkins