Title: Golden Telecom, Inc. v. Global GT LP and Global FT LTD

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
GOLDEN TELECOM, INC., 
 
) 
 
 
 
 
 
 
)  No. 392, 2010 
 
 
Respondent Below, 
) 
 
 
Appellant,  
 
)  Court Below:  Court of Chancery 
 
 
 
 
 
 
)  of the State of Delaware 
v. 
 
 
 
 
 
)  C.A. No. 3698 
 
 
 
 
 
 
) 
GLOBAL GT LP and 
 
 
) 
GLOBAL FT LTD., 
 
 
) 
 
 
 
 
 
 
) 
 
 
Petitioners Below,  
) 
 
 
Appellees.  
 
) 
 
Submitted:  December 8, 2010 
Decided:  December 29, 2010 
 
Before STEELE, Chief Justice, HOLLAND and BERGER, Justices. 
 
 
Upon appeal from Chancery Court.  AFFIRMED. 
 
 
Raymond J. DiCamillo (argued) and Margot F. Alicks of Richards, Layton 
& Finger, P.A., Wilmington, Delaware; David M. Zensky, Samidh Guha, and 
Monica T. Duda of Akin Gump Strauss Hauer & Feld LLP, Of Counsel, New 
York, New York for appellant. 
 
 
John L. Reed (argued), Paul D. Brown, K. Tyler O’Connell and Aleine M. 
Porterfield of Edwards Angell Palmer & Dodge LLP, Wilmington, Delaware for 
appellees. 
 
 
 
 
 
 
STEELE, Chief Justice: 
2 
 
 
On February 28, 2008, after a tender offer, Golden Telecom, Inc. merged 
into Lillian Acquisition, Inc., a wholly-owned subsidiary of Open Joint Stock 
Company Vimpel-Communications.  Golden remained as the surviving entity, and 
all tendering Golden shareholders received $105 per share.  Global GT LP and 
Global GT Ltd. (collectively, Global), Golden shareholders, sought appraisal.  The 
Court of Chancery valued Golden at $125.49 per share.  Golden appealed, Global 
cross-appealed, and we affirm. 
I. FACTS AND PROCEDURAL HISTORY 
Golden incorporated in Delaware in 1999, and has been traded on NASDAQ 
since going public in September 1999.  Its two largest shareholders at all relevant 
times were Altimo and the Telenor Group, owning approximately 27% and 18% of 
Golden, respectively.  In early 2007, VimpelCom notified Golden that VimpelCom 
wanted to acquire Golden.  Altimo and the Telenor Group were also the two largest 
shareholders of VimpelCom, owning approximately 35% and 30%, respectively.   
On May 17, 2007, Golden formed a special committee of independent 
directors, unaffiliated with Altimo and Telenor, to assess and pursue potential 
transactions.  In early September 2007, VimpelCom proposed a tender offer to 
Golden at $80 per share.  In late September 2007, VimpelCom proposed a refined 
range of $80 to $95 per share, in conjunction with Golden’s rising stock price.  On 
3 
 
November 12, 2007, VimpelCom again raised its offer to $100 per share.  The 
special committee rejected the offer.  On November 28, 2007, VimpelCom offered 
$103 per share, and the special committee again rejected the offer. 
On December 1, 2007, VimpelCom offered $105 per share, and on 
December 3, 2007, the special committee recommended the merger at that price 
and the Board of Directors unanimously approved the recommendation.  The 
special committee had never solicited other bidders or attempted to auction 
Golden, and it had received notice from Altimo that Altimo would not consent to 
any acquisition by any bidder other than VimpelCom.  On December 20, Credit 
Suisse delivered a fairness opinion in support of the $105 per share price.  Golden 
distributed that fairness opinion, along with Golden’s business plan, to all 
shareholders.  The companies signed a Merger Agreement on December 21, 2007, 
which called for a cash tender offer for all the outstanding shares of Golden’s 
common stock and a backend merger in which all shares not tendered were 
converted into the right to receive the same amount per share in cash. 
Ultimately, shareholders tendered 94.4% of Golden’s shares before the 
tender offer expired, and another 2.2% accepted the $105 per share price shortly 
thereafter.  Global, however, declined to tender their shares, and opted for an 
appraisal remedy under Delaware General Corporate Law Section 262(h).  On 
April 23, 2010, the Court of Chancery issued an opinion in the appraisal 
4 
 
proceeding that the fair value of Golden as of the merger date was $125.49 per 
share, and it awarded Global a judgment accordingly. 
Golden now appeals the judgment.  First, Golden argues that the Court of 
Chancery erred by failing to defer to the merger price.  Supported by the arms-
length nature of the merger and the efficient market price, Golden contends that the 
merger price indicated Golden’s fair value for purposes of appraisal.  In so 
contending, Golden requests that this Court adopt a standard requiring conclusive 
or, in the alternative, presumptive deference to the merger price in an appraisal 
proceeding.  Second, Golden objects to the Court of Chancery’s valuation.  
Specifically, Golden argues that the Vice Chancellor abused his discretion by 
giving no weight to the market evidence and by making factual findings 
unsupported by the record.  Golden also contends that the Vice Chancellor erred as 
a matter of law and abused his discretion by considering a blended beta, accepting 
Global’s expert’s proffered Equity Risk Premium, and accepting Global’s expert’s 
proffered long term growth rate in its discounted cash flow calculation. 
Global contests all of Golden’s contentions and crossappeals the Court of 
Chancery’s judgment.  Specifically, Global contends that the Vice Chancellor 
erred by using the incorrect tax rate and by failing to consider the Barra beta. 
 
 
II. ANALYSIS 
Our review is de novo to the extent a trial court decision implicates the 
statutory construction of DGCL § 262.1  We use an abuse of discretion standard 
and grant significant deference when we review factual findings in a statutory 
appraisal proceeding.2   
A. 
There Is No Basis For a Court, In a Statutory Appraisal Proceeding, To 
Conclusively, Or Even Presumptively, Defer To a Merger Price As 
Indicative Of “Fair Value.” 
 
In an appraisal proceeding, the Court of Chancery “shall determine the fair 
value of the shares . . . together with interest, if any, to be paid upon the amount 
determined to be the fair value.”3  Section 262(h) neither dictates nor even 
                                          
 
1 M.P.M. Enters., Inc. v. Gilbert, 731 A.2d 790, 795 (Del. 1999). 
2 Id. 
3 8 Del. C. § 262(h). 
5 
 
(h) After the Court determines the stockholders entitled to an appraisal, the appraisal 
proceeding shall be conducted in accordance with the rules of the Court of Chancery, 
including any rules specifically governing appraisal proceedings. Through such 
proceeding the Court shall determine the fair value of the shares exclusive of any element 
of value arising from the accomplishment or expectation of the merger or consolidation, 
together with interest, if any, to be paid upon the amount determined to be the fair value. 
In determining such fair value, the Court shall take into account all relevant factors. 
Unless the Court in its discretion determines otherwise for good cause shown, interest 
from the effective date of the merger through the date of payment of the judgment shall 
be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate 
(including any surcharge) as established from time to time during the period between the 
effective date of the merger and the date of payment of the judgment. Upon application 
by the surviving or resulting corporation or by any stockholder entitled to participate in 
the appraisal proceeding, the Court may, in its discretion, proceed to trial upon the 
appraisal prior to the final determination of the stockholders entitled to an appraisal. Any 
6 
 
                                                                                                                                       
contemplates that the Court of Chancery should consider the transactional market 
price of the underlying company.  Rather, in determining “fair value,” the statute 
instructs that the court “shall take into account all relevant factors.”4  Importantly, 
this Court has defined “fair value” as the value to a stockholder of the firm as a 
going concern, as opposed to the firm’s value in the context of an acquisition or 
other transaction.5  Determining “fair value” through “all relevant factors” may be 
an imperfect process, but the General Assembly has determined it to be an 
appropriately fair process.  Section 262(h) controls appraisal proceedings, and 
there is little room for this Court to graft common law gloss on the statute even if 
we were so inclined. 
Section 262(h) unambiguously calls upon the Court of Chancery to perform 
an independent evaluation of “fair value” at the time of a transaction.  It vests the 
Chancellor and Vice Chancellors with significant discretion to consider “all 
 
stockholder whose name appears on the list filed by the surviving or resulting corporation 
pursuant to subsection (f) of this section and who has submitted such stockholder's 
certificates of stock to the Register in Chancery, if such is required, may participate fully 
in all proceedings until it is finally determined that such stockholder is not entitled to 
appraisal rights under this section. 
 
4 Id. 
5 Gilbert, 731 A.2d at 795 (“Fair value, as used in § 262(h), is more properly described as the 
value of the company to the stockholder as a going concern, rather than its value to a third party 
as an acquisition.  We have long recognized that failure to value a company as a going concern 
may result in an understatement of fair value.”) (citing Gonsalves v. Straight Arrow Pubs., Inc., 
701 A.2d 357, 362 (1997); Cede & Co. v. Technicolor, 684 A.2d 289, 289 (1996); Baron v. 
Pressed Metals of Am., Inc., 123 A.2d 848, 854 (1956)). 
7 
 
relevant factors” and determine the going concern value of the underlying 
company.  Requiring the Court of Chancery to defer—conclusively or 
presumptively—to the merger price, even in the face of a pristine, unchallenged 
transactional process, would contravene the unambiguous language of the statute 
and the reasoned holdings of our precedent.  It would inappropriately shift the 
responsibility to determine “fair value” from the court to the private parties.  Also, 
while it is difficult for the Chancellor and Vice Chancellors to assess wildly 
divergent expert opinions regarding value, inflexible rules governing appraisal 
provide little additional benefit in determining “fair value” because of the already 
high costs of appraisal actions.  Appraisal is, by design, a flexible process.  
Therefore, we reject Golden’s contention that the Vice Chancellor erred by 
insufficiently deferring to the merger price, and we reject its call to establish a rule 
requiring the Court of Chancery to defer to the merger price in any appraisal 
proceeding. 
B. 
We Decline To Adopt a Bright Line Rule That a Company, In An 
Appraisal Proceeding, Is Bound By Company-Specific Data It Has 
Previously Sent To Its Stockholders. 
 
On crossappeal, Global argues that Golden should not have been allowed to 
disavow the tax rate set forth in the fairness opinion it distributed to its 
stockholders—an opinion procured by Golden and prepared by Golden’s financial 
advisor using Golden’s input, assistance, and approval.  Global is correct that 
8 
 
                                          
“[s]tockholders are entitled to rely upon the truthfulness of all information 
disseminated to them.”6  Global is also correct that the “primary purpose of [] 
fairness opinion[s] . . . [i]s to convince the stockholders to whom the tender offer 
[i]s to be made that the price offered [i]s fair.”7  Global argues on that basis that 
prohibiting public companies from walking away from their own company specific 
data previously provided to stockholders reemphasizes the important role of the 
duty of candor in Delaware’s corporation law and supports the goal of an accurate 
determination of “fair value” in appraisal. 
We decline to adopt a rule that binds public companies to previously 
prepared company specific data in appraisal proceedings.  First, as we stated 
above, appraisal is, by design, a flexible process.  The statute gives the Chancellor 
and Vice Chancellors significant discretion, and the adoption of strict rules to 
govern the process, as a general matter, likely would increase the price of an 
already expensive proceeding.  Second, Section 262(h) controls, it is unambiguous, 
and it nowhere requires the appraising authority to require the parties to adhere to 
previously prepared data.  Rather, it vests the court with significant discretion to 
consider “all relevant factors.”8  Third, public companies distribute data to their 
 
6 Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998). 
7 Joseph v. Shell Oil Co., 482 A.2d 335, 341 (Del. Ch. 1984). 
8 See § 262(h). 
9 
 
                                          
stockholders to convince them that a tender offer price is “fair.”  In the context of a 
merger, this “fair” price accounts for various transactional factors, such as 
synergies between the companies.  Requiring public companies to stick to 
transactional data in an appraisal proceeding would pay short shrift to the 
difference between valuation at the tender offer stage—seeking “fair price” under 
the circumstances of the transaction—and valuation at the appraisal stage—seeking 
“fair value” as a going concern.9  Finally, to the extent that allowing a public 
company to advocate different data at the tender offer and appraisal stages of a 
transaction implicates concerns about director abuse of the system, shareholders 
remain protected by fiduciary duties and their right to complain and recover for 
fiduciary misconduct. 
We expect many companies will advocate the same company specific data in 
appraisal proceedings that they have previously advocated in proxy materials.  
Delaware law does not require them to do so, however.  Instead, we recognize that 
the Chancellor and Vice Chancellors can—and generally should—consider and 
weigh inconsistencies in data advocated by a company.  Here, the Vice Chancellor 
had a rational basis for accepting Golden’s proffered tax rate, albeit different than 
the tax rate in its proxy statement. 
 
9 See Gilbert, 731 A.2d at 795. 
10 
 
C. 
The Vice Chancellor Did Not Abuse His Discretion In His Valuation. 
The Court of Chancery abuses its discretion only when either its factual 
findings do not have record support or its valuation is clearly wrong.10  This is a 
formidable standard and we accord Court of Chancery determinations of value a 
high level of deference on appeal.11  We defer because, over time, the Court of 
Chancery “has developed an expertise in cases of this type.”12  In addition, while 
discharging its statutory mandate, it is entirely proper for the Court of Chancery to 
adopt one expert’s model, methodology, and calculations if they are supported by 
credible evidence and the judge analyzes them critically on the record.13  As long 
as they are supported by the record, we will defer to the Court of Chancery’s 
factual findings even if we might independently reach a different conclusion.14 
Against this background of deference, we find that the record supports the 
Vice Chancellor’s findings of fact and valuation methods.  In his opinion, he 
addressed each of these findings of fact and valuation methods, and he followed an 
orderly and logical deductive process in arriving at his conclusions with respect to 
                                          
 
10 M.G. Bankcorp., Inc. v. Le Beau, 737 A.2d 513, 526 (1999). 
11 Id. 
12 In re Appraisal of Shell Oil Co., 607 A.2d 1213, 1219 (1992). 
13 M.G. Bankcorp., 737 A.2d at 526. 
14 Cede & Co. v. Technicolor, Inc., 884 A.2d 26, 35 (2005). 
11 
 
the factual issues disputed on this appeal.  The record supports his conclusions and 
he did not abuse his discretion. 
III. 
CONCLUSION 
The Vice Chancellor did not err by failing to defer to the deal price when 
conducting his appraisal valuation, and we decline to adopt a rule that the 
Chancellor or Vice Chancellors must defer conclusively or presumptively to the 
deal price as indicative of fair value in an appraisal proceeding.  Also, the Vice 
Chancellor did not err by accepting Golden’s proffered tax rate, which was 
different than the tax rate it advocated in its proxy materials, and we decline to 
adopt a rule binding public companies in appraisal proceedings to previously 
disseminated company specific data.  Finally, the Vice Chancellor did not abuse 
his discretion in his valuation.   
The judgment of the Court of Chancery is affirmed.