Law Professors Want DFC Global Appraisal Ruling Overturned

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By Michael Greene

Nine law school professors are asking the Delaware Supreme Court to simplify appraisal litigation by directing the state’s chancery court to defer to the transaction price when a deal is the product of arm’s-length negotiations ( DFC Global Corp. v. Muirfield Value Partners LP , Del., No. 518, 2016, motion to file brief 12/20/16 ).

The academics made the request in an appeal filed by Malvern, Pa.-based payday lender DFC Global Corp. over a chancery court ruling that found the company undervalued when it was acquired in 2014 by private equity firm Lone Star Funds.

“Without a clear rule directing courts to defer to a transaction price resulting from an arm’s-length auction, courts are left to cobble together a discounted cash flow model from the disparate proposals of the parties’ experts,” the professors said in a joint amicus filing in support of DFC Global. “Respectfully, however, judges are ill-equipped to undertake that task.”

The academics also argued that ignoring arm’s-length sale processes “imposes the prospect of costly and unpredictable appraisal litigation on all transactions, which distorts market behavior.”

The group includes Stephen Bainbridge, a law professor from the University of California, Los Angeles, who comments frequently on corporate governance in his Professor Bainbridge blog.

Sold at Discount?

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

In July, the chancery court ruled that the fair value of DFC Global at the time the transaction closed was $10.21 per share. After the court issued its opinion, DFC discovered an error in the court’s fair-value calculation. Although the court corrected the error, it still adhered to its original valuation.

In arguing for reversal, DFC said the chancery court’s decision would undermine confidence in Delaware appraisal actions.

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