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Albert H. Manwaring IV

Appraisal is a limited statutory remedy that provides a Delaware general corporation’s stockholders, who dissent to the sufficiency of the merger price, with the right to have the Delaware Court of Chancery determine the “fair value” of their shares, 8 Del. C. Section 262. In determining fair value, the court must consider all relevant factors. While a single or multiple factors may be considered in the valuation, the court’s determination of the relevant factors must be grounded in the evidentiary record and “accepted financial principles.” In Dell and DFC, the Delaware Supreme Court declined to adopt a presumption that the merger price was reflective of fair value, but emphasized that the merger price was often a “strong indicator” of fair value, at least where the company is publicly traded and sold after a robust sales process, including a meaningful market check, unhampered by significant deal protection measures. Dell also counseled that the unaffected trading price produced by an efficient public market is often a more reliable indicator of fair value than a party’s valuation experts, who invariably tailor their valuation to client objectives in the appraisal. But if the sales process in a merger is flawed and the efficient capital markets hypothesis does not yield an unaffected trading price that is a reliable indicator of fair value, the Court of Chancery will turn to traditional valuation methodology, such as discounted cash flow, comparable companies, and comparable precedent transaction analyses, as the most reliable means to determine fair value.               

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