Delaware Supreme Court Affirms Appraisal Ruling Relying On Unaffected Market Price To Determine Fair Value
On July 9, 2020, in an en banc opinion authored by Chief Justice Collins J. Seitz, Jr., the Delaware Supreme Court affirmed a decision by the Delaware Court of Chancery, which relied on the unaffected stock price of Jarden Corporation to determine its fair value in a post-merger appraisal action. Fir Tree Value Master Fund, LP v. Jarden Corp., No. 454, 2019 (Del. July 9, 2020). “Although it is not often that a corporation’s unaffected market price alone could support fair value,” explained the Delaware Supreme Court, “there is no long-recognized principle that a corporation’s unaffected stock price cannot equate to fair value.” Here, the Delaware Court of Chancery found that “Jarden stock traded in a semi-strong efficient market, meaning the market quickly assimilated all publicly available information into Jarden’s stock price” and explained its reasons for rejecting alternative measures of fair value. Affirming, the Delaware Supreme Court was “satisfied” that the Court of Chancery determined fair value in a manner “grounded in the record before it.”
The appraisal action was brought in the Court of Chancery by Jarden stockholders that rejected the deal price of $59.21 per share in cash and stock in connection with the company’s sale to Newell Brands. The Court of Chancery determined that, of all the valuation methods advanced by the parties, only the unaffected market price of $48.31 could reliably determine the fair value. In reaching this decision, the Court of Chancery cited the lack of comparable companies to assess, the “wildly divergent” discounted cash flow models presented by the parties’ experts, and the likelihood that Jarden captured substantial synergies in the sale price.
On appeal, the stockholder petitioners argued that the Court of Chancery erred as a matter of law by relying on the pre-merger unaffected market price. The Delaware Supreme Court, however, emphasized that Delaware courts must follow the appraisal statute’s “directive to consider ‘all relevant factors.’” The Court also noted that, “[a]lthough subject to academic debate,” it has recognized the efficient capital markets hypothesis in appraisal cases and reiterated that market-based indicators of value still have “substantial probative value.” The Delaware Supreme Court also rejected petitioners’ argument that the Court of Chancery erred in failing to treat the deal price as a “floor” for fair value, finding that the record supported the conclusion that there were synergies in the deal “probably” captured by Jarden in the merger.