The recent decisions by the Delaware Supreme Court regarding appraisal rights decisions in DFC and Dell provide that the appraisal statute requires that the trial judge must consider “all relevant factors,” and that no presumption in favor of transaction price obtains. Where, however, the transaction price represents an unhindered, informed, and competitive market valuation, the trial judge must give particular and serious consideration to transaction price as evidence of fair value. Where information necessary for participants in the market to make a bid is widely disseminated, and where the terms of the transaction are not structurally prohibitive or unduly limiting to such market participation, the trial court in its determination of fair value must take into consideration the transaction price as set by the market. In the recent Delaware case In re Appraisal of AOL Inc. Vice Chancellor Glasscock referred to transactions compliant with such conditions by the shorthand “Dell Compliant.”
According to the Vice Chancellor, the AOL transaction was not Dell Compliant. One reason was the statements made by AOL’s CEO, who negotiated the deal, signaled to potential market participants that the deal was “done,” and that they need not bother making an offer. Specifically, the following exchange occurred during an interview on CNBC:
Interviewer: It’s trading slightly above the premium right now. you didn’t shop this to anybody else?
CEO: No, I’m committed to doing the deal with Verizon and I think that as we chose each other because that’s the path we’re on. I gave the team at Verizon my word that, you know, [w]e’re in a place where this deal is going to happen and we’re excited about it.
I imagine executives of acquired companies will now be advised by counsel to avoid such statements. It also seems that appraisal petitioners will now try to cast lots of statements made by executives as casting doubt on whether or not a transaction is Dell Compliant.
In the end, after lengthy analysis, the Court relied on a DCF analysis that resulted in a fair value of $48.70 per share. The Court used the $50 deal price as a “check” on the analysis. The Court noted the deal price may contain synergies that have been shared with the seller in the deal but that are not properly included in fair value.