Delaware’s Chancery Court went with an adjusted deal price Monday in a ruling on challenges to the $55.85 per share, $6.5 billion sale of Solera Holdings Inc. to Vista Equity Partners LP in 2015, rejecting a vastly higher mark sought by objecting investors and a far lower one suggested by Solera.
Chancellor Andre G. Bouchard said the company’s sales process “delivered for Solera stockholders the value obtainable in a bona-fide, arm's-length transaction, and provides the most reliable evidence of fair value.”
The court’s decision — giving “sole and dispositive weight” to the sale price — was the latest milestone in the Chancery Court’s ongoing absorption of state Supreme Court rulings last year that “heavily endorsed the application of market efficiency principles” in deciding lawsuits by investors challenging merger consideration and seeking court appraisal instead.
Under Delaware’s appraisal law, Solera investors who sued for appraisal will get $53.95 per share, representing the deal price minus the 3.4 percent, or $1.90 per share, portion reflecting noncompensable “synergies” arising from the combination of the two companies.
Solera describes itself as a leading global provider of risk and asset management software and services to the automotive and property management marketplace, including the global property and casualty insurance market.
The company announced a $55.85 per-share go-private deal with Vista in September 2015, after a several-week sale attempt that stockholders described as insufficient. In their appraisal suit, the stockholders argued that Tony Aquila, the company's founder, CEO, president and chairman, organized the deal out of frustration over his compensation and a desire to reassert control over the business.
A total stockholder win would have added $84.6 million, or about 51.6 percent, plus interest, to the share price paid to the three groups of investors who sued under a Delaware law allowing dissenting stockholders to seek a court valuation. It also would have bumped the company’s overall valuation to $8.5 billion.
While the case was underway, however, Delaware’s Supreme Court reversed Chancery Court appraisal decisions in the cases of DFC Global Corp. v. Muirfield Value Partners and Dell Inc. v. Magnetar Global Event Driven Master Fund Ltd.
In DFC, Chancellor Bouchard used an equal weighting of a discounted cash flow model, a comparable company analysis and transaction price to arrive at an appraisal 8 percent higher than the $1.3 billion deal.
In Dell, Vice Chancellor J. Travis Laster rejected both deal and market prices in favor of a value based on discounted cash flow, producing an appraisal 28 percent higher than the original $24.9 billion, go-private buyout.
In both cases, the Supreme Court strongly disagreed and sent the cases back to Chancery Court for reconsideration with the observation, in one case, that market price, when working properly, was an indicator that could be viewed as distilling "the collective judgment of the many.”
Chancellor Bouchard, who at one point described himself as having been “decapitated” by the justices in the DFC decision, quoted from that same reversal in saying that the Solera price was the product of “an open process, informed by robust public information, and easy access to deeper, non-public information, in which many parties with an incentive to make a profit had a chance to bid.”
The DFC valuation by the challenging investors, Chancellor Bouchard found, is speculative and “largely a prediction about the Company’s operations many years into the future.” The company’s lower appraisal, meanwhile, was found less reliable than the merger price, given uncertainties about some of its inputs.
According to the chancellor, many buyers had an opportunity to bid for Solera, in a sale process overseen by a fully empowered special committee of the company’s board “armed with the power to say ‘no,’” producing an outcome that found support in financial markets.
Solera argued in a later, supplemental briefing that the court should consider the unaffected stock price of the company in its decision, some 35 percent below the deal price. That proposal was based on use of the same measure by Vice Chancellor Laster in Verition Partners Master Fund Ltd. v. Aruba Networks Inc., following the remand of his Dell decision.
Chancellor Bouchard, however, said that Solera’s supplemental position “reflects a dramatic change of position that I find as facially incredible as petitioners’ DFC model,” and rejected it.
Although the justices stressed the importance of market reliance, two recent Chancery Court appraisal decisions, including one last week, produced court-set appraisals.
On Friday, Vice Chancellor Joseph R. Slights III issued an appraisal ruling 2.6 percent higher than the $514 million deal price that kitchen and bathroom cabinet maker Norcraft Co. received in a 2015 merger with Fortune Brands Home & Security Inc. The vice chancellor found “significant flaws” in the sales and market check process leading up to the merger, and noted that the Supreme Court had stopped short of giving presumptive weight to deal prices.
The decision meant that challenging investors with Blueblade Capital Opportunities should get $26.16 per share versus the $25.50 paid in 2015.
On Monday, meanwhile, Vice Chancellor Sam Glasscock III heard motions for reconsideration of his February decision in the appraisal of AOL Inc., in which he adjusted downward, to $48.70 per share, the $50 per share deal price in AOL’s $4.4 billion sale to Verizon Communications Inc. in 2015.
Vice Chancellor Glasscock said AOL’s deal price was not “Dell compliant” and had flaws that made it “insufficient to warrant deal price deference.” By developing the court’s own discounted cash flow basis for the appraisal, however, the court excluded the resulting price from any requirement for further reductions to offset ineligible synergy values.
AOL investors who sued for appraisal originally sought nearly $69 per share.
The stockholders are represented by Stuart M. Grant, Christine M. Mackintosh, Vivek Upadhya and Daniel L. Berger of Grant & Eisenhofer PA, and Lawrence M. Rolnick, Steven M. Hecht and Jonathan M. Kass of Lowenstein & Sandler LLP.
Solera Holdings Inc. is represented by David E. Ross and S. Michael Sirkin of Ross Aronstam & Moritz LLP, and Yosef J. Riemer, Devora W. Allon, Elliott C. Harvey Schatmeier, Richard Nicholson and Madelyn A. Morris of Kirkland & Ellis LLP.
The case is In re: Appraisal of Solera Holdings Inc., case number 12080, in the Court of Chancery of the State of Delaware.
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