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MONTH-IN-BRIEF (Aug 2018)

M&A Law

Delaware Court of Chancery Disregards Negotiated Deal Price Due to Flawed Sales Process

By Michael Caine

In a recent opinion, the Delaware Court of Chancery (the “Court”) chose not to rely on the negotiated deal price as an estimate of fair value of a target company’s shares, choosing instead to rely on its own discount flow analysis.  BlueBlade Capital Opportunities LLC, stockholders of Norcraft Companies, Inc. (“Norcraft”), sought appraisal of their shares following an acquisition of Norcraft.  The Court did not rely on a Delaware Supreme Court decision, which held deal price is the most reliable indicator of fair value.  The Court reasoned there were significant flaws in the sales process, including a shortened go-shop period, and therefore, the negotiated deal price was “not a reliable indicator of Norcraft’s fair value” as of the merger date.  As a result, the Court conducted its own discount flow analysis, finding that the value of Norcraft at the time of the merger was approximately 2.5% above the negotiation deal price.  It should be noted, however, that a robust sales process alone may not provide the best indicator of fair value as it is unclear how transaction synergies may impact the Court’s calculation of fair value.

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