Court of Chancery Defers to Deal Price in Panera Bread Appraisal

JAB Holdings B.V. (“JAB”) acquired Panera Bread Company (“Panera”) via a cash-out merger for $315.00 per share on July 18, 2017. Multiple dissenting shareholders (“Petitioners”) filed an appraisal action, seeking a fair value determination of $361.00 per share.

Ultimately, the Vice Chancellor disagreed with Petitioners, ruling that the deal price minus synergies was the best evidence of fair value. The Vice Chancellor found that Panera followed a reliable sale process and any flaws in that process did not undermine its reliability.  The Court supported this finding with the following facts: the parties engaged in arm’s length negotiations, Panera’s board was disinterested and independent, JAB was the sole entity that showed interest in a merger, there were price increases during negotiations, and Panera attempted to solicit other potential buyers during the negotiation process.

The Petitioners asserted that the merger suffered from flaws, which questioned whether the deal price reflected the fair value of the shares. Petitioners claimed that a coverage banker at Morgan Stanley, who worked with JAB and communicated with the Panera deal team at Morgan Stanley on two occasions, undermined the sale process.  The Court noted that these communications actually increased the sale price. The Petitioners also argued that the CEO of Panera, having pushed for a price per share “not deep in the 300s” before the board received a full valuation and an accelerated timeline for the merger, undermined the sale process. The Court held that the Board chair’s early comments about valuation and the accelerated timeline did not distort the sale price because the CEO and board had deep knowledge of Panera’s value and the relevant market. The Court acknowledged that these aspects of the negotiations were not ideal but were not so severe as to make the sale process unreliable.                        

The Petitioners also contended that Morgan Stanley should have advised Panera to seek a go-shop provision; however, the Court found that the record established that there were no other interested bidders. No other bidders emerged after news of a potential acquisition leaked to the market. Additionally, the Court held that Morgan Stanley properly advised Panera by recommending a negotiation strategy that was successful with JAB in prior transactions.  The negotiation strategy resulted in the board extracting two price increases that totaled $18.50 per share and a lower termination fee. Accordingly, the Court found these factors supported the finding that deal price was persuasive evidence of fair value.

The Court deducted synergies totaling $11.56 per share from the deal price and found that the Petitioners were entitled to $303.44 per share as fair value. Panera had prepaid the deal price of $315.00 per share to the Petitioners without having secured a clawback provision if the price the Court determined as fair value was less than what the Company paid. In an issue of first impression, the Court held that Panera was not entitled to a refund under the appraisal statute for the excess $11.56 per share that Panera paid to the Petitioners. Specifically, it noted that, although the appraisal statute allows a corporation to lessen the amount of interest that accrues during the pendency of litigation by prepaying stockholders an amount of cash, the specific words of the statute do not provide for recourse if the corporation overpays its stockholders without having negotiated a clawback provision.


Read the full opinion here

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