In Golden Telecom, Inc. v. Global GT LP, the Delaware Chancery Court recently reiterated its definition of “fair value,” rejecting arguments from both the company and the stockholder who exercised its appraisal rights under Section 262 of the Delaware General Corporation Law. According to the opinion authored by Chief Justice Steele, the court’s definition of “fair value” for Section 262(h) purposes includes “the value to a stockholder of the firm as a going concern, as opposed to the firm’s value in the context of an acquisition or other transaction.”

Relying on this definition, the court rejected the company’s argument that the lower court should have deferred to the merger price—either conclusively or presumptively—in the appraisal proceeding. Golden argued that the arms length nature of the merger resulted in a merger price that was indicative of the company’s fair value and should be given at least presumptive deference. The court concluded, however, that “Section 262(h) neither dictates nor even contemplates that the Court of Chancery should consider the transactional market price of the underlying company.” Instead, the opinion notes that Section 262(h) requires a court to make an independent evaluation of fair value, considering all relevant factors. Deference to the merger price would “inappropriately shift the responsibility to determine ‘fair value’ from the court to the private parties.”

Further relying on its established definition of fair value, the court rejected the stockholder’s argument that the fair value determined in the appraisal proceeding should have used the tax rate set forth in the fairness opinion that the company distributed to the stockholders, rather than a different tax rate presented by the company during the proceeding. Global argued that that Golden should have been bound by the company specific data it previously provided to the stockholders. The court disagreed, stating that “[r]equiring public companies to stick to transactional data in an appraisal proceeding would pay short shrift to the difference between valuation at the tender offer stage—seeking ‘fair price’ under the circumstances of the transaction—and valuation at the appraisal stage—seeking ‘fair value’ as a going concern.” The court noted that if a company’s presentation of different data at the tender offer and appraisal stages implicates concerns about director abuse of the system, stockholders have mechanisms for redress under fiduciary duty law.