DFC Global Investors Underpaid in $366M Merger: Del. Court

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By Michael Greene

July 8 — Alternative consumer financial services provider DFC Global Corp. shares were undervalued when the company was acquired by private equity firm Lone Star Funds for $366 million, the Delaware Chancery Court ruled July 8 ( In re DFC Glob. Corp. , 2016 BL 219857, Del. Ch., No. 10107-CB, 7/8/16 ).

In a lawsuit, shareholders that collectively owned over 4.6 million shares claimed that the payday lender was sold at a discount for $9.50 per share.

Chancellor Andre G. Bouchard, by equally weighing three metrics—a discounted cash flow model, a comparable company analysis and the transaction price—concluded that the fair value of DFC Global at the time the transaction closed was $10.21 per share.

The court found that on their own, the transaction price and the valuation methods weren't the best indicators of fair value because the deal was struck “during a period of significant company turmoil and regulatory uncertainty.”

According to the court's decision, DFC, which had more than 1,500 stores worldwide, entered into its deal with Lone Star in 2014 against a backdrop of potential new rules and regulations from the Consumer Financial Protection Bureau in the U.S. and the Financial Conduct Authority in the U.K.

“Although this Court frequently defers to a transaction price that was the product of an arm’s-length process and a robust bidding environment, that price is reliable only when the market conditions leading to the transaction are conducive to achieving a fair price,” Bouchard wrote. “Similarly, a discounted cash flow model is only as reliable as the financial projections used in it and its other underlying assumptions.”

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

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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