Court of Chancery Share Valuation 101 – Merion Capital LP v. BMC Software Inc.

This opinion written by Vice Chancellor Glasscock offers a straightforward yet lengthy explanation of the process by which the Court of Chancery determines “fair” statutory share valuation.

As the Vice Chancellor writes:

“This case presents what has become a common scenario in this Court: a robust marketing effort for a corporate entity results in an arm‘s length sale where the stockholders are cashed out, which sale is recommended by an independent board of directors and adopted by a substantial majority of the stockholders themselves. On the heels of the sale, dissenters (here, actually, arbitrageurs who bought, not into an ongoing concern, but instead into this lawsuit) seek statutory appraisal of their shares. A trial follows, at which the dissenters/petitioners present expert testimony opining that the stock was wildly undervalued in the merger, while the company/respondent presents an expert, just as distinguished and learned, to tell me that the merger price substantially exceeds fair value. Because of the peculiarities of the allocation of the burden of proof in appraisal actions— essentially, residing with the judge—it becomes my task in such a case to consider ―all relevant factors‖ and determine the fair value of the petitioners‘ shares.”

Chris Lee

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