Delaware Court Of Chancery Finds Fair Value Equal To Deal Price Of Publicly Traded Company In Appraisal Action
On August 12, 2019, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery ruled in a post-trial opinion that the fair value of Columbia Pipeline Group, Inc. (“Columbia”) was equal to the deal price in an appraisal action arising from Columbia’s acquisition by TransCanada Corporation (“TransCanada”). In re Appraisal of Columbia Pipeline Group, Inc., Cons. C.A. No. 12736-VCL (Del. Ch. Aug. 12, 2019). Relying on the Delaware Supreme Court’s recent decisions in DFC, Dell, and Aruba, the Court found the deal price of $25.50 per share to be Columbia’s fair value as of the closing date.
Plaintiffs claimed that Columbia’s stock was worth $32.47 per share based on a discounted cash flow (“DCF”) analysis prepared by their expert. Plaintiffs argued that numerous deficiencies in the sale process undercut the reliability of the deal price, including claims that the CEO and CFO engineered a fire sale to obtain personal benefits and mislead the board about the sale process. Plaintiffs also claimed that Columbia favored TransCanada over other potential buyers, that deal protection measures undermined the sale process, and that the stockholder vote was defective because the proxy was materially misleading. Defendants argued that synergies of $250 million should be deducted from the deal price so that fair value was $20.86 per share.
Although the Court agreed that “[t]he sale process was not perfect,” it nevertheless found that under DFC, Dell, and Aruba, the deal price was still indicative of fair value. Specifically, the Court found that the CEO and CFO had countervailing incentives to pursue the best deal for Columbia, kept the board informed, and that the company had rejected opportunities for a quicker sale. Vice Chancellor Laster also noted that TransCanada offered a higher value than other buyers, and that protective measures did not constrain Columbia during the post-signing period. Lastly, the Court held that while the proxy statement was materially misleading, such that an approving stockholder vote did not lend support to concluding that fair value was equal to deal price, the deal price nevertheless represented Columbia’s fair value. Vice Chancellor Laster observed that the Delaware Supreme Court had cautioned against relying on the DCF methodology for companies where “market-based indicators are available” and cited other “objective indicia that suggest that the deal price was a fair price,” including: (1) the merger was an arm’s-length transaction with a third party which had no prior stock ownership in Columbia; (2) Columbia’s board was not conflicted, and its stockholders who approved the sale were widely dispersed without divergent interests; (3) TransCanada conducted due diligence and received confidential insight into Columbia’s value; (4) Columbia had initially contacted other potential acquirors, all of whom declined to pursue a merger; (5) Columbia extracted multiple price increases from TransCanada; and (6) no bidders emerged in the post-signing phase to top TransCanada’s offer price. Finally, the Court declined to deduct from the deal price $250 million in synergies, finding that the evidence did not show that TransCanada allocated synergies to Columbia as part of the deal price.