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In re DFC Global Corp.

Court of Chancery of Delaware

April 28, 2016, Submitted; July 8, 2016, Decided

CONSOLIDATED C.A. No. 10107-CB

Opinion

MEMORANDUM OPINION

BOUCHARD, C.

In this appraisal action, former stockholders of DFC Global Corporation ("DFC") petitioned the Court to appraise the fair value of shares they held when the company was sold to a private equity buyer, Lone Star Fund VIII (U.S.), L.P. ("Lone Star") for $9.50 per share in June 2014. Petitioners allege that DFC was sold at a discount to its fair value during a period of regulatory uncertainty that temporarily depressed the market value of the company. Using a discounted cash flow model based on management's most recent five-year projections, petitioners' expert calculated a fair value of $17.90 per share. Respondent's expert used a discounted cash flow model and a multiples-based comparable companies analysis, blending the two to calculate a much lower fair value of $7.94 per share. [*2]  Respondent also urges the Court to consider the transaction price of $9.50 per share as the most reliable evidence of fair value.

] Although this Court frequently defers to a transaction price that was the product of an arm's-length process and a robust bidding environment, that price is reliable only when the market conditions leading to the transaction are conducive to achieving a fair price. Similarly, a discounted cash flow model is only as reliable as the financial projections used in it and its other underlying assumptions. The transaction here was negotiated and consummated during a period of significant company turmoil and regulatory uncertainty, calling into question the reliability of the transaction price as well as management's financial projections. Thus, neither of these proposed metrics to value DFC stands out as being inherently more reliable than the other.

In this opinion I conclude that the most reliable determinant of fair value of DFC's shares is a blend of three imperfect techniques: a discounted cash flow model incorporating certain methodologies and assumptions each expert made and some of my own, the comparable company analysis respondent's expert performed, and [*3]  the transaction price. Giving each equal weight, I conclude that the fair value of DFC's shares when the transaction closed was $10.21 per share.

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2016 Del. Ch. LEXIS 103 *

IN RE APPRAISAL OF DFC GLOBAL CORP.

Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

Subsequent History: Reversed by, Remanded by DFC Global Corp. v. Muirfield Value Partners, L.P., 2017 Del. LEXIS 324 (Del., Aug. 1, 2017)

CORE TERMS

beta, valuation, estimate, projections, cash flow, premium, calculated, discounted, cost of capital, fair value, per share, peer, growth rate, formula, methodology, peer group, reliable, decile, capitalization, appraisal, measurement, earnings, comparable, adjusted, stock-based, perpetuity, weighted, inputs, opined, multiples-based

Business & Corporate Law, Shareholder Actions, Appraisal Actions & Dissent Rights, Fair Market Value, Right to Dissent, Mergers & Acquisitions