Chancery Court Judge Bemoans Difficulty of §262 Fair Value Determinations

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By Michael Greene

Jan. 30 — In ruling Jan. 30 that private equity investor Permira Advisors, LLC acquired Ancestry Inc. at a fair value in a cash-out transaction, the Delaware Chancery Court's Sam Glasscock III opined on the difficulty a bench judge faces in determining the fair value of company in light of an auction sale.

“[T]his task is made particularly difficult for the bench judge, not simply because his training may not provide a background well-suited to the process, but also because of the way the statute is constructed,” Vice Chancellor Sam Glasscock III wrote.

The petitioners, who collectively owned approximately 1.4 million shares of common stock at the time of the merger, brought the instant appraisal action, arguing that the fair value of their stock at time of the merger was as high $47, but at least $42.81.

In ultimately rejecting their claims, Glasscock found the market price of $32 per share as the best indicator of Ancestry's fair value.

Valuation Difficulties

Before reaching that conclusion, however, Glasscock repeated comments he has made about the difficulties “a law-trained judge” faces in resolving cases like these.

He noted that typically in areas where judges do not have expertise, they rely on the burden of proof to make difficult factual determinations. But they cannot do so for appraisal petitions.

According to Glasscock, a judge in a bench trial holds on to the burden of proof “like a shipwreck victim grasps a floating deck-chair or an ex-smoker hoards his last piece of nicotine gum. Section 262 is unusual in that it purports explicitly to allocate the burden of proof to the petitioner and the respondent, an allocation not meaningful in light of the fact that no default exists if the burden is not met; in reality, the burden falls on the judge to determine fair value, using ‘all relevant factors.'”

Vice Chancellor Glasscock therefore examined a variety of factors to determine that the market value was the best indicator of fair value.

Attorneys

Kevin G. Abrams, J. Peter Shindel, Jr. and Matthew L. Miller, of Abrams & Bayliss LLP, Wilmington, Del., represented Merion Capital, L.P.

Ronald A. Brown, Jr., Marcus E. Montejo, and Eric J. Juray, of Prickett, Jones & Elliott, P.A., Wilmington, Del., represented Merlin Partners LP and The Ancora Merger Arbitrage Fund, LP.

Stephen C. Norman, Kevin R. Shannon, and James G. Stanco, of Potter Anderson & Corroon LLP, Wilmington, Del.; Of Counsel: Stephen R. DiPrima, William Savitt, Adam M. Gogolak and Steven Winter, of Wachtell, Lipton, Rosen & Katz, New York, represented Ancestry.com Inc.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The opinion is available at http://courts.delaware.gov/opinions/download.aspx?ID=218500.