Opinion ID: 2299360
Heading Depth: 1
Heading Rank: 2

Heading: The Relevance of the Merger and Prior Offers

Text: We review the findings of the trial court in a statutory appraisal proceeding with a high level of deference. [32] In such cases, [t]he discretion to weigh the evidence belongs to the Court of Chancery with our review one of abuse of that discretion. [33] But our review is de novo to the extent the trial court decision implicates the statutory construction of § 262. [34] In this case, the Court of Chancery did not err in its decision regarding the admissibility of the terms of the merger and of the prior offers. It did admit all of these offers into evidence, although it did not dwell on them and ultimately chose not to accord them any weight. Therefore, the inquiry must shift to whether the Court abused its discretion in refusing to give any weight to the terms of the merger and of the prior offers in its appraisal of Gilbert's shares. Section 262(h) requires the trial court to appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation. [35] 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. [36] In Weinberger v. UOP [37] and its progeny, [38] we elucidated the extent of the discretion of the Court of Chancery in choosing a method of valuation in a statutory appraisal. Weinberger acknowledged the Court's discretion to use any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court, subject to our interpretation of 8 Del.C. § 262(h). [39] Assuming the variables applied by the trial court are proper, a DCF analysis is one such technique or method of determining going concern value that is within the trial court's discretion to use. [40] In this appeal, MPM does not challenge the DCF analysis employed by the Court of Chancery or the specific variables used in the analysis. [41] Instead, MPM focuses on other language in § 262(h) requiring the trial court to take into account all relevant factors when determining the fair value of a petitioner's shares. [42] MPM contends that the figures derived from the merger and the prior offers are relevant factors that the trial court impermissibly ignored in its determination of fair value. According to MPM, if the trial court had considered these real world values, it would have realized that the results of the DCF analysis did not accurately reflect the going concern value of MPM at the date of the merger. The initial determination by the Court of Chancery of the variables the parties should employ in the DCF analysis was a well-reasoned use of discretion. The Court certainly acted as an independent appraiser of MPM, using its judgment to discern which facets of the experts' competing analyses correctly set forth the assumptions necessary for a proper DCF analysis. The only question remaining is whether the Court abused its discretion in refusing to compare the figures derived from this properly-applied DCF analysis to the merger value and the valuations implicit in the prior offers. Values derived in the open market through arms-length negotiations offer better indicia of reliability than the interested party transactions that are often the subject of appraisals under § 262. [43] But the trial court, in its discretion, need not accord any weight to such values when unsupported by evidence that they represent the going concern value of the company at the effective date of the merger or consolidation. In this case, MPM proffered evidence of the merger and the prior offers only as part of Lundquist's buy-side DCF. The Court of Chancery properly rejected this DCF approach because it focused on the elements of value that would arise from the merger, rather than on the going concern value of MPM without any consideration of such synergistic values. As noted, section 262(h) explicitly states that the trial court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation .... [44] By determining the highest price at which all synergies devolved to the seller, this buy-side analysis was undoubtedly proscribed by § 262(h). Irrespective of that fact, MPM contends that the Court of Chancery still should have considered the terms of the merger and the prior offers in its final appraisal decision. To support this contention, MPM points to Van de Walle v. Unimation Inc., [45] where the Court of Chancery found that such transactions are the most reliable indicia of fair value, even more reliable than expert testimony concerning DCF analyses. [46] But Van de Walle differs from this case in a very significant respect. In Van de Walle, certain minority stockholders claimed that the target company's board of directors had breached its fiduciary duties in accepting an unfair merger price. In essence, the stockholders argued that the board of directors had failed to obtain the best price available in executing a merger. In this case, a dissenting stockholder petitioned the Court of Chancery to determine the fair value of his shares. Under section 262, the fairness of the price on the open market is not the overriding consideration. Instead section 262(h) requires that the Court of Chancery discern the going concern value of the company irrespective of the synergies involved in a merger. A fair merger price in the context of a breach of fiduciary duty claim will not always be a fair value in the context of determining going concern value. We agree with the general statement made by the Court in Van de Walle. A merger price resulting from arms-length negotiations where there are no claims of collusion is a very strong indication of fair value. But in an appraisal action, that merger price must be accompanied by evidence tending to show that it represents the going concern value of the company rather than just the value of the company to one specific buyer. In this case, MPM failed to present this additional evidence with respect to either the merger or the prior offers. [47] This led the Court of Chancery to decide that these values were of only marginal relevance, if any. In our view, this determination was not an abuse of discretion.