November 12, 2020

Appraisal: Sound Process Leads to Deal Price Fair Value Determination

The Delaware Supreme Court’s recent decision in the Jarden appraisal proceeding appears to have given new life to the use of a target stock’s “unaffected market price” as a valuation metric in appraisal.  However, this Cadwalader memo says that the Court’s decision last month in Brigade Lev. Cap. Fund, et. al. v. Stillwater Mining Co., (Del.; 10/20), confirmed that deal price remains the most reliable indicator of fair value if the seller runs a sound, conflict-free sales process:

The Delaware Supreme Court’s decision in Stillwater confirms—with caveats—pre-Jarden speculations that transaction price will often be found to provide the most reliable indicator of fair value.  Unlike the deficient sale in Jarden, the Delaware Supreme Court agreed with Vice Chancellor Laster that  Stillwater’s sale process presented “objective indicia” to support the conclusion that the merger consideration reliably indicated fair value in this instance.

In affirming, the Delaware Supreme Court observed that the lower court had discretion in selecting the valuation model best tailored to the circumstances.  Quoting Jarden, it stated that “‘[i]n the end, the trial judge must determine fair value, and fair value is just that, fair.  It does not mean the highest possible  price that a company might have sold for.’”  However, this was the Court’s only mention of Jarden, suggesting that the facts there that led the Court to reject merger consideration as evidence of fair value were not present in Stillwater.

The memo reviews the Jarden and Stillwater decisions, and identifies key takeaways as to the current state of appraisal litigation in Delaware.  It notes that the decisions provide a reminder that “the judicial valuation process demands a case-specific inquiry in which a single factor, such as a deficient sales process, can be outcome determinative,” and that the decisions  also confirm that the Delaware courts continue to look to market-based factors as the best indicators of fair value.

John Jenkins