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Intrinsic Value Realization




The Delaware Supreme Court issued a ruling on December 14, 2017 that endorsed its interpretation of the "Efficient Market Hypothesis" as a foundation for relying upon market pricing to define a company’s “fair value” in appraisal proceedings. The Forum accordingly reported that it would resume support of marketplace processes instead of judicial appraisal for its participants' realization of intrinsic value in opportunistically priced but carefully negotiated buyouts. See:

December 21, 2017 Forum Report

 Reconsidering Appraisal Rights for Long Term Value Realization




Forum distribution:

Court unable to perform independent appraisal since expert analyses presented by both sides are unreliable


As reported in the article below, a Delaware judge has again based his appraisal decision on the market pricing of a buyout instead of an independent analysis of intrinsic value, since he viewed the valuation analyses presented by the experts for both sides to be unreliable. (His similar decision in a case last year is pending appeal.) The judge explained his reasoning on the first page of his opinion (page 1, PDF p.2):

...The Petitioners‘ valuation expert proved something of a moving target; he argued that the fair value of a share of Ancestry stock at the time of the merger was as high as $47, but at least $42.81. The Respondent‘s expert opined that fair value was $30.63, despite the fact that the buyer, a non-strategic investor with actual money at risk, was willing to pay more.

     I have commented elsewhere on the difficulties, if not outright incongruities, of a law-trained judge determining fair value of a company in light of an auction sale, aided by experts offering wildly different opinions on value.

To make his views clear, the judge included the following footnote in his introduction to the section of the opinion reviewing the experts' analyses (page 22, PDF p.23):

133 I include a detailed factual recitation here, because the inputs are necessary to any principled attempt to reconcile the experts‘ widely divergent DCF analyses. The casual reader may wish to skip ahead to the discussion section of this Memorandum Opinion; she may find reading the remainder of the facts section reminiscent of eating chicken gizzards: plenty of chewing but mighty little swallowing.

For the full opinion, see


Source: Reuters, January 30, 2015 article


Hedge funds lose court bid over deal price


Wilmington, Del.  |  Fri Jan 30, 2015 6:49pm EST

(Reuters) - Hedge funds lost a court bid to get extra cash for their shares of online family research site Inc, in a ruling involving an increasingly popular hedge fund strategy.

A Delaware judge ruled on Friday that a private equity firm paid a fair value of $32 per share in 2012 to acquire and rejected hedge fund claims the price should have been as high as $47 per share.

The case involves "appraisal arbitrage" in which investors vote against a proposed deal and then ask a judge to determine the fair value of the stock after a trial. was sold to European private equity firm Permira Advisers. The private equity firm paid 40 percent above the market price for the stock, according to the 56-page opinion from Sam Glasscock, a judge on Delaware's Court of Chancery.

After the deal closed, Merion Capital, Merlin Partners and Ancora Merger Arbitrage Fund exercised appraisal rights and sought a better price for their 1.4 million shares. Their expert argued for between $42.81 and $47 per share, while's expert put the fair price at $30.63 per share, according to the opinion.

One lawyer who specializes in appraisals said he would not be deterred from bringing the cases because, while Glasscock arrived at the merger price, he made a detailed analysis of the presentations from both sides.

"I’m not at all thinking less of bringing claim because of this decision," said Steven Hecht, of Lowenstein Sandler.

Glasscock said reviewing both detailed financial analyses was like "eating chicken gizzards: plenty of chewing but mighty little swallowing."

Earlier this month, Glasscock issued a ruling that would make it easier for funds to pursue appraisal arbitrage cases.

Merion, founded by securities class action lawyer Andrew Barroway, has been a leader in bringing appraisal arbitrage cases, which can take years to resolve.

While the investors failed to increase the amount, the judge also declined to find fair value below the deal price. The funds will also collect interest, limiting their potential losses.

The appraisal arbitrage strategy has produced big returns. In 2012, Orchard Enterprises Inc was ordered to pay Merlin Partners and others $4.67 per share for their stake in the company, more than twice the $2.05 per share merger price. declined to comment. Attorneys for the investors did not immediately respond to a request for comment.

(Editing by Matthew Lewis. Editing by Andre Grenon)


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