Verizon Overvalued AOL in 2015 $4.4B Buyout, Del. Judge Says

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By Jacob Rund

Verizon Communications Inc. paid $1.30 more per share for former internet powerhouse AOL Inc. than the company’s “fair value,” a Delaware state court ruled.

Chancery Court Judge Sam Glasscock wrote Feb. 23 that AOL investors who challenged the $4.4 billion price of the 2015 acquisition should receive 2.6 percent less than the $50 per share offered by Verizon. The dissenting stockholders—a group of investment funds holding more than 8 million AOL shares—sought about $19 more per share than the deal price.

This is the second chancery court decision this month to find a company was worth less than the price negotiated by the parties, a blow to stockholders suing for a higher valuation under the state’s appraisal statute. The law allows a target company’s stockholders that object to, or don’t participate in, the merger to ask the chancery court to assess the fair value of their shares.

Vice Chancellor J. Travis Laster on Feb. 15 gave two Aruba Networks Inc. investors less than they asked for their shares after finding the company’s $2.7 billion sale to HP Inc. was more than fair. The court’s valuation relied on Aruba’s market price at the time of the deal, rather than the negotiated deal price.

No Reliance on Deal Price

In his Feb. 23 ruling, Glasscock said the “unique circumstances” surrounding AOL’s sale meant no weight could be given to the deal price when assessing fair value.

He pointed to public statements made by AOL’s CEO while the company was soliciting buyout offers, which Glasscock said signaled to potential purchasers that the Verizon deal was already done and “they need not bother making an offer.”

These statements and other issues with the merger process meant the deal didn’t meet the criteria outlined by the Delaware Supreme Court, Glasscock said. The state high court said in a 2017 ruling involving the appraisal of Dell Inc. shares that deference should be given to negotiated deal prices where the sales process was robust and investors were sufficiently informed.

Glasscock said the difference between his valuation and the negotiated price may be due to synergies that benefited the companies. Delaware courts don’t take into account deal synergies when assessing fair value in appraisal cases.

A spokesperson for the law firm representing the AOL investors didn’t immediately respond to a request for comment.

The case is In re Appraisal of AOL Inc. , 2018 BL 60894, Del. Ch., No. 11204-VCG, 2/23/18 .

To contact the reporter on this story: Jacob Rund at jrund@bloomberglaw.com

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

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