(Article from Securities Law Alert, August/September 2019)
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In two recent decisions, the Delaware Chancery Court held that the fair value in a statutory appraisal proceeding brought pursuant to Section 262 of the Delaware General Corporation Law was the deal price, without any deduction for merger-related synergies. See In re Appraisal of Stillwater Mining Co., 2019 WL 3943851 (Del. Ch. Aug. 21, 2019) (Laster, V.C.); In re Appraisal of Columbia Pipeline Grp., 2019 WL 3778370 (Del. Ch. Aug. 12, 2019) (Laster, V.C.). In both cases, the court found that the acquirer failed to meet its burden of proving that a downward adjustment for synergies was warranted.
In Columbia Pipeline, the court recognized that “‘[i]t is widely assumed that the sale price in many M&A deals includes a portion of the buyer’s expected synergy gains, which is part of the premium the winning buyer must pay to prevail and obtain control.’” 2019 WL 3778370 (quoting DFC Glob. Corp. v. Muirfield Value Partners, 172 A.3d 347 (Del. 2017)). The court noted that “Section 262(h) requires that the Court of Chancery discern the going concern value of the company irrespective of the synergies involved in a merger.” The court explained that in order “[t]o derive an estimate of fair value, the court must exclude any synergies or other value expected from the merger giving rise to the appraisal proceeding itself.”
The court found that it was “not able to credit [the acquirer’s] position that [the target] received 100% of synergies worth $4.64 per share” out of a total deal price of $25.50 per share. The court found that the acquirer “likely could have justified a smaller synergy deduction, but it claimed a larger and unpersuasive one” for which it “did not meet its burden of proof.” The Stillwater Mining court similarly found that the acquirer “failed to meet its burden of proof to establish a quantifiable amount that the court should deduct from the deal price.” 2019 WL 3943851. In both cases, the court declined to make a downward adjustment to the deal price to account for merger-related synergies.