Court Rules for Appraisal: Fair Value = Intrinsic Value
The law firm representing Dell
Valuation Trust has prepared a report of Delaware legal standards for
determining “fair value” in appraisal cases,
based on their review of each of the court decisions during the past
20 years. Focusing on what is likely to be most relevant to investors,
the report analyzes the rules and results for “standalone buyouts”
such as the Dell transaction in which the buyer is not paying for any
value beyond that of the going concern.
September 9, 2013, Jeremy D.
Anderson, Erin C. E. Battersby and José P. Sierra of Fish & Richardson
P.C., memorandum to Dell Valuation Trust: Delaware Appraisal of Fair
Value for Standalone Buyouts
These points should interest investors, and especially value
law defines “fair value” the same way value investors do, as the
“intrinsic value” of a going concern.
supreme court in 2010 determined that appraisal of “fair value” must
be made independently of market bids, echoing the similar advice of
Benjamin Graham to focus on intrinsic value and ignore “Mr. Market.”
is unlikely that any standalone buyer, especially a management insider
partnering with professional investors, could present a credible
argument that the buyer had knowingly offered to pay more for a
company than it was worth.
records show there has not been even one case during the past two
decades of a standalone buyout in which “fair value” was appraised at
less than the offer price.
The Delaware standard for “fair value” makes appraisal rights
essentially a professionalized version of value investing, with two
and risk are reduced by valuing the going concern as of the effective
date of the transaction, eliminating the need to guess about future
pricing of the value realization is based on a court’s review of
expert analyses, and it is reasonable to assume that a Delaware
Chancery judge will be better informed and less fickle than Graham’s
Your comments will be welcomed.
GL – September 10, 2013
Chairman, The Shareholder Forum
575 Madison Avenue, New York, New York 10022