236 A.3d 313
Del.2020Background
- Jarden’s CEO Martin Franklin negotiated a sale to Newell; the merger closed in April 2016 for $59.21 per share (cash and stock). Several large stockholders sought appraisal in the Court of Chancery.
- The Court of Chancery held a four-day trial with competing experts; petitioners’ comparable-companies and DCF analyses produced much higher values than Jarden’s expert and the market.
- The Chancery Court found the merger process flawed (CEO-led negotiations, no market check) but also found the market for Jarden stock was semi-strong efficient and that synergies existed and likely were at least partly captured by Jarden in the deal price.
- Because the experts’ DCFs and the comparable-companies analysis produced wildly divergent outcomes and the peer set was unreliable, the court relied primarily on Jarden’s unaffected market price ($48.31) as fair value, adjusting and re-running its own DCF only to corroborate that result.
- Petitioners appealed, arguing (inter alia) that market price cannot equal fair value, the court should have treated the deal price as a floor, and the court improperly altered its DCF terminal investment rate on reargument.
- The Delaware Supreme Court affirmed: the Chancery Court did not err as a matter of law or abuse its discretion in using the unaffected market price and in its treatment of deal price, market evidence, comparables, and the DCF/TIR adjustments.
Issues
| Issue | Petitioners' Argument | Jarden's Argument | Held |
|---|---|---|---|
| Use of unaffected market price as fair value | Market price does not equal fair value; court erred by relying on it | Market was semi-strong efficient and reflected material public information; market price is probative | Affirmed—market price may equate to fair value when justified; Chancery reasonably relied on $48.31 given the record |
| Role of deal price as a floor | Deal price should be at least a floor; process flaws explain lower price | Deal price unreliable here because process flaws and it included synergies; must adjust for synergies | Affirmed—court properly declined to treat deal price as floor after finding flawed process and that synergies were likely captured |
| Weight to DCF and comparable-company analyses | Petitioners’ DCF/comparables supported much higher value and should have been credited | Experts’ inputs diverged sharply and peer set was unreliable; DCFs not dependable here | Affirmed—Chancery permissibly discounted DCFs and comparables for lack of reliable inputs and extreme divergence |
| Court’s DCF/TIR revisions on reargument | Changing the terminal investment rate (TIR) was improper and skewed DCF to match market price | Correction aligned the DCF with accepted convergence (McKinsey) approach (RONIC→WACC); court didn’t rely on DCF as primary source | Affirmed—court did not abuse discretion applying and correcting the McKinsey/convergence approach; DCF used only to corroborate market price |
Key Cases Cited
- Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 210 A.3d 128 (Del. 2019) (discusses weight to give deal price and market efficiency in appraisal)
- DFC Global Corp. v. Muirfield Value Partners, L.P., 172 A.3d 346 (Del. 2017) (appraisal valuation standards; market and deal-price relevance)
- Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 177 A.3d 1 (Del. 2017) (courts must consider market-based indicators and justify methodology)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (foundational appraisal principles and rejection of the Delaware Block Method)
- Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989) (principle that appraisal seeks to value what was taken from the shareholder)
- SmithKline Beecham Pharm. Co. v. Merck & Co., Inc., 766 A.2d 442 (Del. 2000) (standard of review for legal error and deference to trial court findings)