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Recent Appraisal Decision Relies Solely on Merger Price to Determine “Fair Value”—And May Suggest Greater Receptivity to Downward Adjustments to Exclude Value of Synergies — Merion v. Lender Processing


By: Andrew J. Colosimo, Aviva F. Diamant, Christopher Ewan, Arthur Fleischer, Jr., Andrea Gede-Lange, David J. Greenwald, Randi Lally, Mark H. Lucas, Scott B. Luftglass, Brian T. Mangino, Brian Miner, Robert C. Schwenkel, David L. Shaw, Peter L. Simmons, Matthew V. Soran, Steven J. Steinman, Gail Weinstein

In a noteworthy appraisal decision, Merion Capital v. Lender Processing Services, Inc. (Dec. 16, 2016), the Delaware Court of Chancery relied entirely on the merger price to determine “fair value” and issued an appraisal award equal to the merger price.  In the attached Briefing, we discuss that:

  • The decision confirms that an appraisal award likely will not exceed the merger price in a non-affiliated transaction where there was a market check with “meaningful competition”—particularly if, as in Lender Processing, there are also additional factors supporting the reliability of the merger price as an indicator of fair value.
  • The decision is the first in which the court has relied on the merger price when it has viewed both the merger price and the inputs available for a financial valuation analysis as reliable indicators of “fair value.”
  • The decision confirms that a market check may be viewed as having included “meaningful competition” even where there was ultimately only one bidder.
  • The decision encourages respondent companies to make timely arguments, supported by a sufficient record, for the court to make downward adjustments to the merger price to exclude the value of expected merger-specific synergies.
We also discuss other notable aspects of the decision, including the court's emphasis on the importance of the pre-signing period, as compared to a post-signing go-shop, in establishing whether there was “meaningful competition”; and the court's reiteration of its skepticism (previously expressed in Dell) as to whether a financial buyer's merger price, which is based on an “LBO pricing model,” would be a reliable indicator of “fair value.”  We also offer practice points arising from the opinion.

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