U.S. Legal News
| Fri May 26, 2017 | 4:42pm EDT
Court finds Petsmart buyout fair in blow
to appraisal strategy
| WILMINGTON, Del.
WILMINGTON, Del. Private equity firms paid fair value for PetSmart Inc
when they bought the retailer for $8.7 billion in 2015, a Delaware judge
ruled on Friday, dealing a blow to hedge funds that try to wring cash from
merger deals through a strategy known as appraisal.
Partners Inc led a consortium of private equity investors that acquired
PetSmart for $83 per share, but a group of hedge funds argued in a
Delaware court during a four-day trial the price should have been $128.78
Delaware Vice Chancellor Joseph Slights rejected the hedge funds' analysis
and said he could not find a way to determine any price other than the
deal price was fair value.
Stuart Grant, who represented the hedge funds, did not immediately respond
to a request for comment. PetSmart said it was pleased with the ruling.
Appraisal is meant to protect investors who oppose a buyout by allowing
them to ask a judge to determine fair value of a stock. Friday's ruling is
likely to please some Wall Street lawyers who have criticized appraisal as
little more than a hold-up tactic.
anyone had a gold rush mentality with appraisal rights, the court has
shown them that's not warranted," said Minor Myers, a professor at
Brooklyn Law School. "The court will still be there in the right case, but
this is not a broken ATM."
Hedge funds, including ones affiliated with Farallon Capital Management
and Muirfield Capital Management, sought to have 10.7 million shares of
PetSmart appraised after the buyout closed. That made PetSmart one of
largest appraisal cases, worth hundreds of millions of dollars, and
followed high-profile cases over the sale of Dell Inc, BMC Software and
DFC Global Corp.
Deal price was determined to be the fair value in BMC, but in the other
two cases hedge funds got a bump in price.
Slights seemed to push back against the ruling in Dell by Vice Chancellor
Travis Laster, who suggested that private equity buyers were less likely
to pay a fair value because their investment was premised on large
"And while it is true that private equity firms construct their bids with
desired returns in mind, it does not follow that a private equity firm's
final offer at the end of a robust and competitive auction cannot
ultimately be the best indicator of fair value for the company," Slights
wrote in a 109-page opinion.