Del. Justices Reverse Appraisal Of $1.3B DFC
Wilmington (August 1, 2017, 4:02 PM EDT) -- The Delaware Supreme Court on
Tuesday overturned the Chancery Court’s determination that payday lender
DFC Global Corp.’s private-equity buyer underpaid by about $100 million in
its $1.3 billion acquisition, but refused to create a broad judicial rule
that deal price is the best indication of fair value in appraisal actions.
The 87-page opinion penned by Chief Justice Leo E. Strine Jr. did state
that in the DFC Global case, the best evidence of fair value for the stock
was indeed the deal price Lone Star Fund VIII paid for it, but that
finding is suggested by the specific economic conditions surrounding the
The justices, however, rejected
arguments from DFC Global that
the state Supreme Court should find that in all cases in which there is a
trouble-free transaction, it ought to be presumed in appraisal actions
that deal price is the best estimate of fair value.
“We decline to engage in that act of creation, which in our view has no
basis in the statutory text, which gives the Court of Chancery in the
first instance the discretion to ‘determine the fair value of the shares’
by taking into account ‘all relevant factors,’” Chief Justice Strine
wrote. “Until the General Assembly wishes to narrow the prism through
which the Court of Chancery looks at appraisal value in specific classes
of mergers, this court must give deference to the Court of Chancery if its
determination of fair value has a reasonable basis in the record and in
accepted financial principles relevant to determining the value of
corporations and their stock.”
How the Delaware justices would rule on the issue of deal price has
piqued the interest of the
mergers and acquisitions bar, as there has been a lively debate over how
it ought to factor in the Chancery Court’s appraisal determinations
against a backdrop of a growing number of opinions giving deference to the
But the state Supreme Court squelched any idea that it would stray from
its 2010 ruling in Golden Telecom Inc. v. Global GT LP, widely seen as the
operative precedent tasking Chancery judges with performing an independent
analysis in appraisal cases.
“Capitalism is rough and ready, and the purpose of an appraisal is not to
make sure that the petitioners get the highest conceivable value that
might have been procured had every domino fallen out of the company’s way;
rather, it is to make sure that they receive fair compensation for their
shares in the sense that it reflects what they deserve to receive based on
what would fairly be given to them in an arm’s-length transaction,” Chief
Justice Strine wrote.
The justices did take DFC Global to task for raising the issue of whether
deal price should be presumptive of fair value only at the appellate stage
and only presenting to the Chancery Court that it should receive
“significant weight” in an analysis.
That made the issue “not properly presented,” and Chief Justice Strine
wrote that the justices were “reluctant” to even address it, but did so
because it bore some relationship to case-specific issues.
“We place great value on the assessment of issues by our trial courts, and
it is not only unwise, but unfair and inefficient, to litigants and the
development of the law itself, to allow parties to pop up new arguments on
appeal they did not fully present below,” the chief justice wrote.
With the issue remanded, the case does, nonetheless, have a chance of
ultimately breaking in DFC Global’s favor.
When Chancellor Andre G. Bouchard
made his appraisal determination
in September, he ruled that DFC Global’s stock was undervalued by the
market in part because of an uncertain regulatory environment clouding the
payday-lending sector, and he valued the company’s shares in an analysis
that gave equal weight to three factors — a discounted cash flow analysis
from the company’s expert, his own analysis and the actual market price.
The Supreme Court ruled that the chancellor gave no explanation for why he
weighed those factors in that manner and that his remand opinion, if it
weighs disparate factors again, must provide the reasoning.
The justices also agreed with DFC Global’s argument that Chancellor
Bouchard’s position that regulatory uncertainty would make a market check
of the company’s value unreliable was “not rationally supported by the
“The Court of Chancery did not cite, and we are unaware of, any academic
or empirical basis to conclude that market players like the many who were
focused on this company’s value would not have examined the potential for
regulatory action and factored it in their assessments of the company’s
value,” Chief Justice Strine wrote.
Representatives for the sides did not immediately respond to requests for
DFC Global is represented by Raymond J. DiCamillo and Matthew D. Perri of
Richards Layton & Finger PA, and
Meryl L. Young, Colin B. Davis and Joshua S. Lipshutz of
Gibson Dunn & Crutcher LLP.
The petitioners are represented by Stuart M. Grant and Kimberly A. Evans
Grant & Eisenhofer PA.
The appellate case is DFC Global Corp. v. Muirfield Value Partners LP, et
al., case number 518, 2016, in the Delaware Supreme Court.
The lower court case is In re: Appraisal of DFC Global Corp., case number
10107, in the
Delaware Court of Chancery.
Additional reporting by Jody Godoy and Jeff Montgomery. Editing by Jack
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