HBK Master Fund L.P. v. Pivotal Software Inc., C.A. No. 2020-0165-KSJM (Del. Ch. Aug. 14, 2023)

The Delaware Court of Chancery engages in an independent valuation process when determining the fair value of petitioners' stock in appraisal actions. In this case, Chancellor McCormick addresses an interesting question concerning the deal price primacy under Delaware law and ultimately rejects deference to it in controlling stockholder squeeze-out transactions subject to the MFW protections.

As a threshold matter, the respondent argued that the petitioners failed to prove ownership of the stock at relevant times and did not demonstrate that the shares were not voted in favor of the merger. The Court found, however, that the respondent waived its challenge to the petitioners' standing by failing to assert this argument in the pre-trial submissions.

Regarding the substance, the Court discussed the "pecking order of [valuation] methodologies" reflected in recent Delaware case law. According to this pecking order, an analysis built on the market-based indicators, most importantly the deal price, has become "first among equals," with a DCF or comparable company analysis being considered secondary. The Court followed this hierarchy but determined that the deal price, in this case, was not a reliable indicator because the transaction was a controller squeeze-out that lacked the competitive dynamics that typically render this metric reliable. The respondent argued that the deal price nevertheless should be given deference in controller squeeze-outs if they are subject to MFW proceedings. The Court explained that such an approach would result in "little daylight between MFW and appraisal," and the appraisal process would stop being a safety valve that protects minority stockholders in squeeze-outs. Thus, the Court did not adopt the MFW analysis argued by the respondent and turned to other methods of determining fair value, such as DCF and comparable company analyses.