High Court Affirms Deal Price Was Reliable Indicator of Fair Value Despite Flawed Process

Morris James LLP
Contact

Brigade Leveraged Capital Structures Fund Ltd. v. Stillwater Mining Co., C.A. No. 427, 2019 (Del. Oct. 12, 2020)

This case illustrates that, notwithstanding a flawed process for the sale of a company, the deal price may still provide a reliable indicator of the fair value of shares in an appraisal action. Petitioners had contended that the Court of Chancery abused its discretion in upholding a rushed sale process and in failing to make an upward adjustment to the deal price based on an increase in the company’s value post-signing.

In rejecting the Petitioners’ appeal, the Supreme Court found that the record contained objective indicia that supported the Court of Chancery’s valuation, including: (1) “the Merger was an arm’s length transaction with a third party”; (2) “the Board did not labor under any conflicts of interest”; (3) the buyer “conducted due diligence and received confidential information about Stillwater’s value”; (4) Stillwater “negotiated . . . multiple price increases”; and (5) “no bidders emerged during the post-signing phase.” The Court also reasoned that early process flaws caused by a CEO/director’s personal liquidity needs did not undermine confidence in the deal price, because his focus seemed to be on maximizing value. 

The Supreme Court also held that the Court of Chancery did not abuse its discretion in rejecting Petitioners’ conclusory arguments in support of a purchase price adjustment, based on a rise in the value of the company post-signing and pre-closing, due to a failure to meet their burden of proof. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morris James LLP | Attorney Advertising

Written by:

Morris James LLP
Contact
more
less

Morris James LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide