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Delaware Chancellor endorses practice of rejecting widely divergent expert views to perform own independent appraisal

 

For the decision reported below, in which the presiding Chancellor of Delaware's Chancery Court addresses increasing judicial distrust of professional valuation advocacy by adopting the process of independent court appraisal demonstrated in the recently decided Dell case, see

 

Source: Reuters, July 8, 2016 article

Reuters

 

Business | Fri Jul 8, 2016 5:51pm EDT

Related: Deals

Delaware judge rules DFC Global was sold too cheaply in 2014

WILMINGTON, DEL | BY TOM HALS

A judge ruled on Friday that payday lender DFC Global Corp was sold too cheaply to private equity firm Lone Star Funds in 2014, the second time in recent weeks that investors prevailed in squeezing extra cash out of a merger deal through a Delaware lawsuit.

Delaware Chancellor Andre Bouchard found four DFC shareholders were entitled to $10.21 a share at the time of the deal, or about 7 percent above the $9.50 per share deal price that was approved by a majority of DFC shareholders.

The biggest investor in the case, Muirfield Value Partners, specializes in bringing so-called appraisal lawsuits, in which shareholders who oppose a buyout ask a judge to determine the fair value of their stock.

While the investors convinced the judge that the fair value was above the deal price, Bouchard rejected their view that they were entitled to $17.90 per share of DFC, which is based in Berwyn, Pennsylvania.

In May, Delaware Vice Chancellor Travis Laster ruled that Dell Corp underpriced by 22 percent its $24.9 billion sale in 2013 to company founder Michael Dell and Silver Lake Partners.

In Friday's ruling, Bouchard acknowledged DFC's sale process "appeared to be robust." But he said it was not an indicator of fair value given that Lone Star believed it was buying a business in a temporary trough that would soon be worth more.

The judge said Lone Star was focused on "achieving a certain internal rate of return and on reaching a deal within its financing constraints, rather than on DFC's fair value."

Lone Star declined to comment.

In the Dell ruling, the judge found that the computer maker ran a thorough sale process, but rejected that as an indicator of the company's worth because the buyout was premised on what a private equity buyer was willing to pay.

Law firms that advise corporate boards warned the Dell case would encourage appraisal lawsuits by making it hard for private equity firms to justify the price paid, even in a well-run sale process.

Friday's DFC ruling only benefits the four investors who sought appraisal of a total of 4.6 million DFC shares, which would have generated about $3.3 million more than the deal price.

In addition to Muirfield, the investors seeking appraisal were Oasis Investments II Master Fund Ltd, Randolph Slifka and funds associated with Candlewood Investment Group.

The ruling can be appealed.

 

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