DFC Global Corporation v. Muirfield Value Partners, L.P.
172 A.3d 346
| Del. | 2017Background
- DFC Global, a publicly traded payday-lending company with significant operations in the U.K., Canada, and the U.S., was taken private in 2014 by Lone Star; the merger price was $9.50 per share and generated an appraisal petition.
- DFC faced heavy regulatory headwinds (notably U.K. regulatory changes) and was highly leveraged; analysts, rating agencies, and potential bidders factored regulatory risk into valuations.
- The sale process lasted ~2 years, involved outreach to many financial and strategic buyers, and the Court of Chancery found it to be an arm’s-length, robust market check with no conflicts.
- Experts produced divergent valuations: petitioners’ DCF produced $17.90; respondent’s DCF/comparables produced ~$7.81–$8.07; deal price was $9.50.
- Chancellor adopted: (1) a DCF ($13.07), (2) comparable companies ($8.07), and (3) deal price ($9.50), and averaged them (one-third weight each) to reach $10.21/share; after reargument he corrected a working-capital error but increased the terminal growth rate to 4.0%, yielding $10.30/share.
- Delaware Supreme Court reversed and remanded: declined to adopt a judicial presumption in favor of deal price but found the Chancellor’s reasons for discounting the deal price and for raising the perpetuity growth rate were not supported by the record.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Delaware courts should adopt a presumption that an arm’s‑length deal price from a robust market check is the best evidence of fair value | Petitioners (stockholders) argued the DCF should control; some amici favored limiting deference to deal price | Respondent (DFC/Lone Star) urged a judicial presumption that deal price is best evidence when sales process is open and market is informed | Court declined to create a judicial presumption; reaffirmed §262(h) grants Chancery discretion to consider “all relevant factors” and apply methods case-by-case (Golden Telecom precedent) |
| Whether the Chancellor abused discretion by giving only one-third weight to the deal price despite finding a robust, arm’s‑length market check | DFC: given the robust process and public information, the deal price should have received greater (potentially dispositive) weight | Petitioners: deal price unreliable due to regulatory uncertainty and buyer type; DCF better | Court held the Chancellor’s stated reasons (regulatory risk and private equity buyer) for diminishing the deal price lacked record support here; remand to reassess weight with explanation |
| Whether the Chancellor properly increased the perpetuity growth rate from 3.1% to 4.0% on reargument after correcting a working‑capital clerical error | Petitioners argued working-capital inputs required a higher terminal growth rate to be internally consistent | DFC argued the change was unjustified, raised late, and lacked evidentiary support | Court held the 4.0% shift was not rationally supported by the record; correcting the clerical error alone would have produced much lower DCF and comparable values; remand required if DCF with higher PGR is used, court must ground it in record evidence |
| Whether it was an abuse of discretion to give weight to comparable‑companies analysis rather than sole/primary weight to DCF | Petitioners: DCF was the most reliable method and comparables unreliable | DFC: comparables and market methods were probative | Court held comparable‑companies analysis was supported by record (experts agreed on peers); Chancellor within discretion to weight it, but must explain weighting choices |
Key Cases Cited
- Golden Telecom, Inc. v. Global GT LP, 11 A.3d 214 (Del. 2010) (rejected a mandatory presumption favoring merger price; appraisal court must consider all relevant factors)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (appraisal law moved from rigid Delaware Block Method to flexible consideration of generally accepted valuation techniques)
- Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989) (articulated going-concern/pro rata approach and exclusion of merger-specific synergy value)
- Cede & Co. v. Technicolor, Inc., 684 A.2d 289 (Del. 1996) (market price is a relevant factor when market is active and price not unreliable)
- Paskill Corp. v. Alcoma Corp., 747 A.2d 549 (Del. 2000) (describes Delaware Block Method components and weighting considerations)