Delaware law has long made clear that the price established for a company in a market transaction, while a relevant factor, does not necessarily equate to the fair value that shareholder claimants are entitled to receive in an appraisal proceeding. But a series of more recent decisions in the Delaware Court of Chancery reinforced the view that the market value for a company set in an arm’s-length transaction, achieved by a thorough sale process, usually represents the best evidence of fair value. Vice Chancellor J. Travis Laster’s May 31 decision, In re Appraisal of Dell, C.A. No. 9522-VCL (Del.Ch. May 31, 2016), provides a sharp reminder of the limits of market price as an indicator of fair value when the transaction involves a leveraged management buyout (MBO), even one resulting from a careful sales effort free of any fiduciary breach.
As Dell makes clear, appraisal claimants in transactions involving inherent conflicts of interest (including an MBO) or an unreliable sales process, or both, will have an excellent opportunity to persuade the court that fair value exceeds the transaction price. The Dell decision affirms the primacy of the court’s role in making such determinations in MBO and other conflict transactions. Left unresolved is what effect this will have on the structuring of such transactions and the criteria to which deal participants and their fiduciaries may turn to be confident they have captured fair value.
