DFC Global Corp. v. Muirfield Value Partners, L.P.
Supreme Court of Delaware
June 7, 2017, Submitted; August 1, 2017, Decided
No. 518, 2016
[*348] STRINE, Chief Justice:
In this appraisal proceeding involving a publicly traded payday lending firm purchased by a private equity firm, the respondent argues that we should establish, by judicial gloss, a presumption that in certain cases involving arm's-length mergers, the price of the transaction giving rise to appraisal rights is the best estimate of fair value. We decline to engage in that act of creation, which in our view has no basis in the statutory text, which gives the Court of Chancery in the first instance the discretion to "determine the fair value of the shares" by taking into account "all relevant factors." As this Court previously held in Golden Telecom, Inc. v. Global [**3] GT LP, that language is broad, and until the General Assembly wishes to narrow the prism through which the Court of Chancery looks at appraisal value in specific classes of mergers, ] this Court must give deference to the Court of Chancery if its determination of fair value has a reasonable [*349] basis in the record and in accepted financial principles relevant to determining the value of corporations and their stock.
On the record before us, however, the respondent has made two convincing case-specific arguments why the Court of Chancery's determination of fair value cannot be sustained on appeal. For starters, the respondent notes that the Court of Chancery found that: i) the transaction resulted from a robust market search that lasted approximately two years in which financial and strategic buyers had an open opportunity to buy without inhibition of deal protections; ii) the company was purchased by a third party in an arm's length sale; and iii) there was no hint of self-interest that compromised the market check. Although there is no presumption in favor of the deal price, under the conditions found by the Court of Chancery, economic principles suggest that the best evidence of fair value [**4] was the deal price, as it resulted from an open process, informed by robust public information, and easy access to deeper, non-public information, in which many parties with an incentive to make a profit had a chance to bid. But, despite its own findings about the adequacy of the market check, the Court of Chancery determined it would not give more than one-third weight to the deal price for two reasons.
The first reason was that there were regulatory developments relevant to the company being appraised and, therefore, the market's assessment of the company's value was not as reliable as under ordinary conditions. The respondent argues that this finding was not rationally supported by the record. We agree. The record below shows that the company's stock price often moved over the years, and that those movements were affected by the potential that the company's industry—payday lending and other forms of alternative consumer financial services—would be subject to tighter regulation. The Court of Chancery did not cite, and we are unaware of, any academic or empirical basis to conclude that market players like the many who were focused on this company's value would not have examined the [**5] potential for regulatory action and factored it in their assessments of the company's value. Like any factor relevant to a company's future performance, the market's collective judgment of the effect of regulatory risk may turn out to be wrong, but established corporate finance theories suggest that the collective judgment of the many is more likely to be accurate than any individual's guess. When the collective judgment involved, as it did here, not just the views of company stockholders, but also those of potential buyers of the entire company and those of the company's debtholders with a self-interest in evaluating the regulatory risks facing the company, there is more, not less, reason to give weight to the market's view of an important factor.Read The Full CaseNot a Lexis Advance subscriber? Try it out for free.
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172 A.3d 346 *; 2017 Del. LEXIS 324 **; 2017 WL 3261190
DFC GLOBAL CORPORATION, Respondent Below, Appellant/Cross-Appellee, v. MUIRFIELD VALUE PARTNERS, L.P., OASIS INVESTMENTS II MASTER FUND LTD., CANDLEWOOD SPECIAL SITUATIONS MASTER FUND, LTD., CWD OC 522 MASTER FUND LTD., and RANDOLPH WATKINS SLIFKA, Petitioners Below, Appellees/Cross-Appellants.
Subsequent History: Case Closed August 17, 2017.
Prior History: [**1] Court Below: Court of Chancery of the State of Delaware. C.A. No. 10107.
In re DFC Global Corp., 2016 Del. Ch. LEXIS 103 (Del. Ch., July 8, 2016)
Disposition: REVERSED and REMANDED.
Projections, fair value, cash flow, discounted, petitioners', growth rate, buyers, working capital, perpetuity, comparable, appraisal, merger, valuation, beta, estimate, reargument, per share, calculation, regulation, lending, markets, payday, risk-free, shares, stock, changes, Rating, acquisition, long-term, reasons
Business & Corporate Law, Shareholder Actions, Appraisal Actions & Dissent Rights, Fair Market Value, Civil Procedure, Appeals, Standards of Review, Corporations, Appraisal Actions & Dissent Rights, Standards of Review, Abuse of Discretion