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Court of Chancery of Delaware
February 27, 2017, Submitted; May 30, 2017, Decided
C.A. No. 10554-VCG
GLASSCOCK, Vice Chancellor
The Petitioners here are former stockholders of SWS Group Inc. ("SWS" or the "Company"), a Delaware corporation. They are seeking a statutory appraisal of their shares. The Company was exposed to the market in a sales process. As this Court has noted, most recently in In Re Appraisal of PetSmart, Inc.,1 ] a public sales process that develops market value is often the best evidence of statutory "fair value" as well. [*2] As noted below, however, the sale of SWS was undertaken in conditions that make the price thus derived unreliable as evidence of fair value, in my opinion. Methods of valuation derived from comparable companies are similarly unreliable here. I rely, therefore, on a discounted cash flow ("DCF") analysis to determine the fair value of SWS, assisted by the learned but divergent opinions of the parties' experts. My rationale for rejecting sale price, and my resolution of the disputed issues involved in the competing DCFs, follows.
This action arises from the Petitioners' statutory right to receive a judicial determination of the fair value of their shares of SWS. On January 1, 2015, SWS merged into a wholly-owned subsidiary of Hilltop Holdings, Inc. ("Hilltop"), itself a substantial creditor of SWS. SWS shareholders received a mix of cash and stock worth $6.92. The Petitioners are a series of funds holding appraisal-eligible shares of SWS. The Petitioners bring this action challenging the merger consideration as unfair. It is my statutory duty to determine the fair value of the Petitioners' shares as of the date of the merger.
This case presents two divergent narratives. The first is [*3] that the Company was on the brink of a turnaround before the sale, and had only been suffering due to unique and unprecedented market conditions. The second is that the Company had fundamental structural problems making it difficult to compete at its size. The reality is somewhere in the middle, in my view. The Company was a struggling bank which had a chance to modestly improve its outlook around the time of sale. It still faced a long climb, however.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
2017 Del. Ch. LEXIS 90 *; 2017 WL 2334852
IN RE APPRAISAL OF SWS GROUP, INC.
Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.
Subsequent History: Judgment entered by In re SWS Grp., Inc., 2017 Del. Ch. LEXIS 178 (Del. Ch., June 22, 2017)
merger, projections, valuation, shares, fair value, sales, premium, warrants, parties, beta, comparable, Broker-Dealer, calculation, appraisal, cash flow, stock, per share, methodologies, stockholders, acquisition, acquirer, terminal, inputs, bank holding company, financial adviser, divergent, capitalization, Respondents', shareholders, synergies
Business & Corporate Law, Shareholder Actions, Appraisal Actions & Dissent Rights, Fair Market Value, Right to Dissent, Procedural Matters, Evidence, Burdens of Proof, Allocation, Preponderance of Evidence