Wed Oct 21, 2015 7:11pm EDT
Delaware judge rules against hedge funds
in BMC buyout
| BY TOM HALS
Delaware judge on Wednesday rejected hedge fund Merion Capital's attempt
to wring an extra $150 million from the 2013 sale of BMC Software Inc by
going to court and arguing that a fair deal price should have been much
case stemmed from the sale of BMC to a consortium including Bain Capital
and Golden Gate Capital for $46.25 per share, for a total of $6.9 billion.
before the deal closed in 2013, funds affiliated with Merion Capital
bought 7.6 million shares of BMC stock to pursue what has come to be known
as "appraisal arbitrage," an investing strategy that Merion helped
the deal closed, Merion Capital asked a Court of Chancery judge to find
that the fair value of their stock was actually $67.08 and order BMC to
pay it an added $20 per share above the deal price, or an extra $156
However, Vice Chancellor Sam Glasscock said in a 51-page opinion published
Wednesday that a transparent sale was the best determinant of fair value.
find it appropriate to look to the price generated by the market through a
thorough and vigorous sales process as the best indication of fair value
under the specific facts presented here," he wrote.
Glasscock said he settled on the deal price in part because of the wide
differences in expert testimony about the fair value of BMC shares. The
company argued for fair value at $37.88 per share.
and its attorney at Ashby & Geddes in Wilmington, Delaware, did not
immediately respond to a request for comment.
Critics say interest, which accrues at 5.75 percent on the investor's
holding during the case, encourages appraisal arbitrage. The U.S. Chamber
of Commerce has lobbied for legislation to cut the interest and limit
appraisal to long-term investors.
Merion, founded by securities class action lawyer Andrew Barroway, has
been a leader in bringing appraisal arbitrage cases. Earlier this year,
Glasscock ruled against Merion in the buyout of Ancestry.com, also finding
the deal price was fair.
legal expert who studies appraisal said the Ancestry.com and BMC cases
show investors need to understand when to seek appraisal.
cases suggest appraisal can still be a useful remedy for a stockholder,
but you can't just have a briefcase full of analysis and hope to pull the
wool over a judge's eyes," said Minor Myers, a professor at Brooklyn Law