Bank Merger Appraisal Nets 10.7% Gain For
Wilmington (November 10, 2016, 7:40 PM EST) -- A Delaware corporate
appraisal suit paid off Thursday for stockholders who disputed the value
given their shares in the 2014 merger of two family-controlled western
Pennsylvania banks, with a court opinion bumping up the price paid to
challengers by 10.7 percent.
Chancellor Andre G. Bouchard set the share price after rejecting
recommendations filed by both sides and expressing concern that the
interests of a single controlling family “stood on both sides of the
transaction” in the merger of Delaware-incorporated Farmers & Merchants
Bancorp of Western Pennsylvania, Inc., and NexTier, Inc., which operate in
counties north and northeast of Pittsburgh, Pennsylvania.
The stock merger, completed at an $83-per-share price for F&M shares in
December 2014, “was not the product of a robust sale process,” Chancellor
Bouchard said in a 48-page opinion that fixed the F&M stock price at
$91.90 per share.
“Although a special committee of the F&M board was formed for the
ostensible purpose of establishing an independent group to negotiate on
behalf of F&M’s minority stockholders, the record does not inspire
confidence that the negotiations were truly arms-length,” Chancellor
Delaware law allows challenges to deal appraisals for stockholders who
refuse to accept or support merger terms of Delaware-chartered companies
and instead seek court determinations. The choice can pay
if a court chooses a higher price. Dissenting stockholders also receive
interest on any gain from the appraisal at 5 percent plus the
Federal Reserve discount rate, compounded quarterly from the date of
Although the F&M-NexTier dispute was dwarfed by cases like the recent
battle over appraisal of stock after
Dell Inc.’s $25 billion go-private deal, the F&M case, led by
stockholder John Dunmire, still involved significant court attention,
including a three-day trial.
Chancellor Bouchard said in his opinion that the court pulled together a
valuation for the company based on best choices from opposing sides in the
case as well as modifications to those approaches and industry standard
methods, eventually valuing F&M as a business at $70.5 million and $91.90
“This court has remarked before on the tendency of litigants to submit
wildly divergent valuations of the same company even when using similar
methodologies,” the chancellor said. “This case is no different.”
An expert for F&M stockholders seeking appraisal proposed $137.97 per
share, or 66 percent above the deal price, while an expert for the family
interests controlling the two banks reached $76.45, about 8 percent below
the deal price.
The original merger called for F&M stockholders to receive 2.17 shares of
NexTier stock for each of their own, with NexTier’s merger price set at
$180 per share.
Complicating the original offer, Chancellor Bouchard said, was a
less-than-independent process for setting the merger price, including
formation of a three-member special committee to consider the deal that
included two members with business ties to the controlling family.
“I accord the evidence the weight and credibility I find it deserves,”’
the chancellor said in his opinion.
At one point before the merger, F&M’s CEO said he was no longer speaking
as a bank officer during delivery of a message from the controlling family
to the special committee, saying that the family “would like to get $180 a
share” after having paid an earlier $175-per-share bank acquisition price.
No other bidders for F&M were considered, Chancellor Bouchard pointed out.
Although a deal proxy and consent solicitation were issued in July 2014,
the proxy noted that the controlling family had already approved the deal
and adopted the merger terms.
The stockholders were represented by Edward M. McNally and Nicolas Krawitz
Morris James LLP and Shawn M. Perry of Perry & Perry LLP.
Farmers & Merchants Bancorp Inc. is represented by Kenneth J. Nachbar,
Ryan D. Stottmann and Glenn R. McGillivray of
Morris Nichols Arsht & Tunnell LLP.
The case is John Dunmire, et al., v. Farmers & Merchants Bancorp Inc.,
case number 10589, in the
Court of Chancery of the State of Delaware.
--Additional reporting by Martin O'Sullivan. Editing by Jack Karp.
© 2016, Portfolio Media, Inc.