Court-awarded premiums have also fallen sharply as court rulings have relied more on market evidence and deal price.
Boston—The annual volume of shareholder appraisal petitions filed in the Delaware Court of Chancery reverted to pre-boom levels in 2022. The report, Appraisal Litigation in Delaware: Trends in Petitions and Opinions, 2006–2022, examines trends in litigation in which shareholders challenge the deal prices in proposed acquisitions. It found that following the 2013–2017 filing boom in which petitions peaked at 76 in 2016, there were 20 appraisal petitions filed in 2022. This is in line with the 2006–2012 historical average.
In the 2016 ruling in In re Appraisal of Dell Inc., questions were raised about the reliance on deal price in determining fair value in an appraisal context. Subsequent rulings have clarified the approach used, changing the calculus for premiums awarded in appraisal matters. This resulted in heightened risk for petitioners who choose to take appraisal matters to trial.
“Our report looks at historical trends, and between 2006 and 2016, court-awarded premiums averaged 27.2%. From 2017 onward, this number has fallen to -8.4% on average,” said Dr. Frank Schneider, a report coauthor and head of the Cornerstone Research M&A, Valuation, and Bankruptcy group. “We found a marked difference between court-awarded premiums for public and private targets, with public targets averaging ‑7.9% post-2017, compared to 17.3% between 2006 and 2016. Meanwhile, the court-awarded premiums for private targets have averaged -10.8% post-2017, compared to 46.1% between 2006 and 2016.”
Delaware Court rulings from 2016 onward have deferred to market evidence in the form of the unaffected market price or the deal price minus synergies and adjustments for any value change between deal signing and closing. The robustness of the sale process continues to be a determining factor, with the courts frequently citing “objective indicia” to determine whether a sale process produced a deal price reliable enough to be used in calculating fair value.
“In rulings since Dell, DFC (DFC Global Corp. v. Muirfield Value Partners), and AOL (In re Appraisal of AOL Inc.), the Delaware Courts have more frequently cited ‘objective indicia’ used to determine whether the deal price in a merger is a reliable indicator of fair value,” said Jakub Mydlarz, a Cornerstone Research senior manager and report coauthor. “While the majority of recent opinions have relied on deal price as the most reliable indicator of fair value, those which have rejected deal price, such as Jarden (In re Appraisal of Jarden Corp.) and Synapse (Kruse v. Synapse Wireless Inc.), have generally not met one or more of Delaware’s objective indicia.”