In a recent ruling, the Delaware Court of Chancery underscored the hurdles that petitioners face in gaining above-market compensation for their shares in an appraisal action when the underlying company was public and sold in a “robust” auction process. This decision comes just weeks after another appraisal decision in the same case that upheld the standing of stockholders who engage in “appraisal arbitrage” to bring appraisal actions in their own name. While the impact of these new decisions on the growing appraisal arbitrage industry is yet to be determined, the most recent ruling’s reliance on the actual sales price as a principal indicator of fair value may dampen the resolve of arbitrageurs to bring appraisal actions.
On Jan. 30, Vice Chancellor Sam Glasscock III issued a memorandum opinion in In re Appraisal of Ancestry.com, C.A. No. 8173-VCG. The petitioners were three hedge fund arbitrageurs, Merion Capital L.P., Merlin Partners L.P. and the Ancora Merger Arbitrage Fund L.P. (together referred to as “Merlin”), which together owned about 1.4 million shares of common stock in Ancestry.com, a genealogy service. Ancestry.com was acquired for $32 per share in cash by a private equity buyer. The record date for share ownership was Nov. 30, 2012, and the transaction closed Dec. 28, 2012. Merion and Merlin bought shares in Ancestry.com apparently for the purpose of seeking a valuation in an appraisal action above $32 per share. Merion, for example, first began purchasing shares Dec. 4, after the record date, and made its intent to exercise its appraisal rights known Dec. 12.
