In yesterday's post, I discussed Vice Chancellor J. Travis Laster's recent ruling in Palkon v. Maffeii, 2024 WL 678204 (Del. Ch. Feb. 20, 2024). The case concerned a challenge to the proposed redomestications of TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc. from Delaware to Nevada. While the Vice Chancellor took injunctive relief "off the table", he did allow the case to move forward. If the plaintiffs prevail, the obvious question will be "what are the damages?".
The Vice Chancellor provides two answers:
One way to determine the quantum of harm would be to value the Company pre-conversion as a Delaware corporation, then value the Company post-conversion as Nevada corporation, subtract the Nevada value from the Delaware value, and calculate a per share amount. That would be hard.
But there is another way to get at the delta. The Company's stock has a trading price. In the conversion, nothing will change except the Company's corporate domicile. Maffei's control will remain constant. The Company's business will remain constant. The only independent variable is the law governing its internal affairs.
Given that set-up, the change in the Company's trading price should help quantify the harm, if any, caused by the conversion. As long as the market for the Company's common stock is semi-strong-form efficient, then the price reaction should be indicative. Note that the stock price need not fairly approximate a pro rata share of the Company's intrinsic value for the price reaction to matter. As long as any pricing disconnects remains consistent across variables other than the governing law, the price impact should provide insight.
I disagree that the only independent variable will be the law governing the corporation's internal affairs. It is certainly possible that some extrinsic event, such as a terrorist attack, could occur that affects the trading price. It is also possible that the trading price increases and thus there are no damages. The plaintiffs, however, may argue that the price would have increased even more but for the announcement of the conversion. What if the price decreases but the decrease is consistent with other similar companies or the market overall? If it comes to a question of damages, I foresee a battle of highly compensated experts.
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