In recent appraisal actions the Delaware Court of Chancery has shown a willingness to look to deal consideration in arm's-length transactions as the best indicator of fair value, breaking from its tradition of using discounted cash flow to determine a company's value. Two recent decisions confirm this trend, but also show the limitations of the court's willingness to use deal consideration as a value measure.
In Huff Fund Investment Partnership v CKx, Inc,(1) a case in which the court had previously ruled that the merger price paid by the acquirer was the best available measure of the target's value, the court held to its ruling and denied motions by both parties to adjust the appraisal determination in light of, among other factors, a post-merger acquisition by the target, unexploited revenue opportunities and certain cost savings realised by the acquirer in taking the target private.
In contrast, in Laidler v Hesco Bastion Environmental(2) – a case in which a company's majority shareholder conducted a tender offer and subsequent short-form merger to acquire full control of the company – the court made clear that this same deference will not be afforded to interested transactions and instead fashioned its own calculation of the fair value of the petitioner's shares based on a direct capitalisation of cash flows.
For further information on this topic please contact Tara Fisher, Jane D Goldstein or Lisa Rachlin at Ropes & Gray's Boston office by telephone (+1 415 315 6300), fax (+1 415 315 6350) or email([email protected], [email protected] or [email protected]). Alternatively, contact James C Davis at Ropes & Gray's Chicago office by telephone (+1 312 845 1200), fax (+1 312 845 5500) or email ([email protected]). The Ropes & Gray website can be accessed at www.ropesgray.com.
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