July 13, 2020

Appraisal: Del. Supreme Court Upholds “Unaffected Market Price” Valuation

Remember when the Delaware Supreme Court  issued a sharply worded opinion reversing Vice Chancellor Laster’s decision to adopt an “unaffected market price” approach to fair value in his Aruba Networks appraisal decision? Well, last Thursday, in Fir Tree Value Master Fund v. Jarden, (Del.; 7/20), the Court unanimously upheld Vice Chancellor Slights’ decision to use that same valuation standard in an appraisal proceeding involving Jarden Corporation.

Chief Justice Seitz’s 43-page opinion rejected the petitioners’ argument that the Court’s decision in Aruba Networks “foreclosed as a matter of law the court’s use of unaffected market price to support fair value.”  Instead, he said that the neither Aruba nor the Supreme Court’s other recent appraisal decisions ruled out using any recognized valuation methods to support fair value:

In DFC, Dell, and Aruba we did not, as a matter of law, rule out any recognized financial measurement of fair value. Instead, we remained true to the appraisal statute’s command that the court consider “all relevant factors” in its fair value determination. Although subject to academic debate, we have also recognized the efficient capital markets hypothesis in appraisal cases. The Vice Chancellor got the “takeaway” exactly right from our recent appraisal decisions: “[w]hat is necessary in any particular [appraisal] case [] is for the Court of Chancery to explain its [fair value calculus] in a manner that is grounded in the record before it.”

So, it appears that the Court’s hostility toward the Chancery’s use of the target’s unaffected market price to determine fair value in Aruba Networks had more to do with Vice Chancellor Laster’s approach to the valuation process in that case than it did with any fundamental concerns about the use of that standard to determine fair value.

We’ll be posting memos in our “Appraisal Rights” Practice Area.  But for now, check out Prof. Ann Lipton’s analysis of the decision over on “Business Law Prof. Blog.”

John Jenkins