The Delaware Supreme Court’s two recent decisions in Dell and DFC strongly endorsed the application of market efficiency principles in appraisal actions, and gave virtually controlling weight to the deal price as the “best evidence” of a company’s fair value where a robust sales process was conducted against the backdrop of a well-functioning market for the target’s stock.  In the wake of those two decisions, the Court of Chancery has issued a series of opinions considering whether deal synergies or the unaffected market price should be used to adjust the deal price downward to determine the going concern fair value. Chancellor Andre G. Bouchard in In re Appraisal of Solera Holdings Consolidation, C.A. No. 12080-CB (Del. Ch. July 30, 2018), provided further guidance about how to measure and deduct the value of the buyer’s synergies to arrive at the company’s fair value.

Background

Solera Holdings Inc. was founded in 2005 and became a global leader in data and software for automotive, home ownership and digital identity management. Its stock was publicly traded on the New York Stock Exchange from 2007 until March 2016 when it was acquired by Vista Equity Partners in a merger transaction for $55.85 per share, approximately $3.85 billion in total equity value. In the appraisal action that followed, the petitioners relying solely on a DCF value model contended the fair value of their shares was $84.95 per share. Respondent argued initially that the best evidence of the fair value of the Solera shares was the deal price less estimated synergies expected by the buyer, a value of $53.95 per share. Subsequently, after trial and following the Court of Chancery’s decision in the Aruba appraisal case adopting the unaffected market price of the company’s stock as fair value, the respondent changed course and argued for use of the same approach by the Solera court. This equated to $36.39 per share, approximately 35 percent below the deal price.