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Appraisal Rights


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:

Another appraisal decision rejects "fanciful" and "flawed" valuation opinions of "paid experts"


For the decision reported below, in which Delaware's Chancery Court addresses increasing judicial distrust of professional valuation advocacy by relying upon an apparently fair auction pricing instead of company intrinsic value, see

  • May 26, 2017, In Re Appraisal of PetSmart, Inc. (C.A. No. 10782-VCS): Memorandum Opinion  (110 pages, 802 KB, in PDF format)  [Court relies upon apparently fair pricing in absence of credible investor valuation (p.3): "Petitioners have failed to carry their burden of persuasion that a DCF analysis provides a reliable measure of fair value in this case. The management projections upon which Petitioners rely as the bedrock for their DCF analysis are, at best, fanciful...."; concludes (p.108): "paid experts have offered such wildly different opinions" and "I can find no basis to accept Petitioners’ flawed, post-hoc valuation and ignore the deal price...."]


Source: Reuters, May 26, 2017 article



U.S. Legal News | Fri May 26, 2017 | 4:42pm EDT

Court finds Petsmart buyout fair in blow to appraisal strategy

By Tom Hals | 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.

BC 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 per share.

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.

"If 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 returns.

"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.


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