Big news. From Richards, Layton & Finger:
The Supreme Court identified and rejected three premises on which the trial court had relied in deciding to assign no weight to the transaction price:
First, the trial court had concluded that there had been a "valuation gap" between the trading price of Dell's stock and the intrinsic value, leading the trial court to believe that the bidding during the sale process had been anchored at an artificially low value. The Supreme Court rejected this premise, emphasizing that Dell's stock was widely traded in a liquid and efficient market and that the Company had been transparent about its long-term plans.
Second, the trial court had focused on the absence of strategic (as opposed to financial) bidders during the pre-signing market check. Following its ruling in DFC Global Corp. v. Muirfield Value Partners, __ A.3d __, 2017 WL 3261190 (Del. Aug. 1, 2017), the Supreme Court wrote that it saw "'no rational connection' between a buyer's status as a financial sponsor and the question of whether the deal price is a fair price." The Supreme Court emphasized that "Dell's sale process bore many of the same objective indicia of reliability that we found persuasive enough to diminish the resonance of any private equity carve out or similar such theory in DFC."
Third, the trial court had credited expert testimony to the effect that management-led buyouts tend to suffer from structural problems, such as the "winner's curse" and the perceived value of management to the company, that undercut the reliability of the deal price as evidence of fair value. The Supreme Court held that "none of these theoretical characteristics detracts from the reliability of the deal price on the facts presented here." With regard specifically to the "winner's curse," the Supreme Court wrote: "If a deal price is at a level where the next upward move by a topping bidder has a material risk of being a self-destructive curse, that suggests the price is already at a level that is fair. The issue in an appraisal is not whether a negotiator has extracted the highest possible bid. Rather, the key inquiry is whether the dissenters got fair value and were not exploited."
