Delaware amended its appraisal statute in 2016 to allow companies to prepay appraisal claimants in order to stop interest from accruing, but there is no provision in the statute for a refund of those payments. As a result, it has been unclear whether companies could obtain a refund if the court determined that the deal price exceeded fair value.
Last week, in In re Appraisal of Panera Bread Company, (Del. Ch.; 1/20), the Chancery Court addressed this question for the first time. The fair value in that case was determined under the “deal price minus synergies” standard, and was substantially lower than the deal price. The company sought a refund of the difference between what it paid claimants based on the deal price & fair value, but Vice Chancellor Zurn concluded that since the statute did not expressly permit a refund, the company was out of luck. This excerpt summarizes her reasoning:
I conclude Section 262 does not explicitly provide for a refund, and that therefore I cannot order one. I am not the first to conclude that the Court must stay within the bounds of Section 262’s plain language. In 1948, the Delaware Supreme Court concluded that because the operative version of Section 262 did not provide for interest, the judiciary could not award it. More recently, before the prepayment provision was enacted, Vice Chancellor Glasscock found he was unable to order prepayment. After those exercises in judicial restraint, amendments in the statute soon followed. I will not encroach on the General Assembly’s prerogative.
Since there’s no right to a refund, the alternative for companies that want to preserve their right to a refund is to negotiate for a “clawback” right with the petitioners. As this Skadden blog notes, while Section 262(h) doesn’t require such an arrangements, many petitioners are amenable to it in practice.
Hat tip to Prof. Ann Lipton for flagging this aspect of the Chancery Court’s decision on Twitter.
– John Jenkins