Market price

Delaware Supreme Court Upholds Unaffected Market Price in Legal Assessment Action | Jones Day

Market price not allocated as fair value

This statutory valuation action stems from the acquisition of Jarden by Newell, two large consumer products companies, for $ 59.21 per share. Some of Jarden’s large shareholders refused to accept the deal price, claiming he was undervaluing Jarden. They asked for an appraisal and in doing so agreed to accept the “fair value” of their shares, determined by justice, whether the court found it to be greater, equal or less than the sale price itself. .

Shareholders offered competing valuation methods and related expert testimony. The Court of Chancery ultimately determined that Jarden’s fair value was equal to its unaffected market price of $ 48.31, which is the market price on the last day Jarden’s shares were traded. unaffected by news of the merger negotiations, which was leaked about a week before the deal was announced.

The court held that it was reasonable to rely exclusively on Jarden’s unaffected market price, as Jarden’s shares traded in a semi-strong efficient market, which quickly incorporated all publicly available information into Jarden’s share price. The court also concluded, based on an event study by Jarden’s expert, that shareholders had failed to prove that the market lacked material non-public information on Jarden’s financial outlook. .

On appeal, the Delaware Supreme Court upheld the Chancellery’s decision and its findings. The shareholders argued that under the earlier Supreme Court ruling Aruba decision, the fair value of a company’s stock is not its market price. The Supreme Court rejected this argument, noting that the Aruba The court recognized that the market price of a stock traded in an efficient market should be taken into account because it “is an important indicator of its economic value”. The Court also clarified that Aruba and its other recent valuation decisions did not exclude any recognized valuation method to support the determination of fair value in a statutory valuation action, including unallocated market price, as long as the valuation method was supported by evidence on the record.

Effect of Garden

To the extent that uncertainty persisted after Aruba, the Delaware Supreme Court Garden The ruling makes it clear that the unaffected market price can be used as a primary indicator of fair value in statutory valuation actions when the stock is trading in an information efficient market.

The Supreme Court has recognized that the unaffected market price is not always a better indicator of fair value than the deal price because, when negotiating a deal, a buyer usually has an informational advantage over the market. third. Nor does the transaction price set a valuation “floor” when it results from a faulty sales process. The Supreme Court rejected the argument that Jarden would have received a higher sale price had it not been for the flaws in the sale process related to Jarden’s negotiation of the merger, and therefore refused to find an error in the court’s decision. chancery that the fair value was less than the sale price. , which reflects important synergies.

The Garden The decision thus increases the risk for shareholders requesting a valuation, as they may ultimately be given a fair value for their shares well below the transaction price.

Jones Day represented Newell in its acquisition of Jarden.


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