Business | Fri
Jul 8, 2016 5:51pm EDT
Delaware judge rules DFC Global was sold
too cheaply in 2014
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
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
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
Lone Star declined to
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
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