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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 reference:

Court again rejects both merger price and "wildly divergent valuations" of experts to preform its own appraisal of fair value


For the court decision reported below, see


Source: Law360, November 10, 2016 article

Bank Merger Appraisal Nets 10.7% Gain For Stockholders

By Jeff Montgomery

Law360, 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 Bouchard wrote.

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
huge dividends 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 the deal.

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 per share.

“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 of 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.


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