Are Below-the-Merger-Price Appraisal Results Likely To Become More Common?—The Critical Misconception Relating to the SWS Decision

By: Warren S. de Wied, Steven Epstein, Arthur Fleischer, Jr., David J. Greenwald, Scott B. Luftglass, Philip Richter, Robert C. Schwenkel, Peter L. Simmons, Gail Weinstein

In SWS (May 30, 2017), the Delaware Court of Chancery, relying on a discounted cash flow analysis, determined that the appraised “fair value” of SWS Group, Inc. (the “Company”) was below the merger price paid by acquiror Hilltop Holdings, Inc. The court's determination of fair value was 7.8% below the value of the merger consideration at closing (about 19% below the value of the merger consideration at the time the merger agreement was announced and the hedge-fund petitioners decided to acquire their SWS shares). A number of commentators have suggested, based on SWS, that below-the-merger-price appraisal results are now likely to become more common. In the attached Fried Frank Briefing, we discuss that, in our view, a general misconception relating to SWS has led to that conclusion. We also outline the factors that, in our view, are relevant to the issue whether such results are or are not likely to become more common.

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