Today marks the five-year anniversary of the Delaware Chancery Court’s ruling in the appraisal of Stillwater Mining Company.
Of continuing vitality today is the Court’s special focus on the right of the appraisal claimant to receive the benefit of any change in value of the appraised asset between signing and closing. As recognized in Stillwater:
Under Section 262 [the appraisal statute], the time for determining the value of a dissenter’s shares is the point just before the merger closes. The deal price provides a data point for the value of the company as of the date of signing, but the valuation date for an appraisal is the date of closing. Consequently, if the value of the corporation changes between the signing of the merger and the closing, the fair value determination must be measured by the “operative reality” of the corporation at the effective time of the merger [citations omitted].
That principle was subsequently applied with even greater force in the Regal Entertainment Group appraisal case, where the court found that there was no dispute the appraising stockholder was entitled to the benefit of Regal’s improved valuation due to the passage of the Tax Cuts and Jobs Act having been enacted by Congress in between the signing and the closing of the subject merger, with the only dispute between the parties in that case being precisely the methodology and amount by which that change in value should be calculated.
In Stillwater, the court identified the policy rationale underlying the need to potentially adjust merger price based on post-signing factors, such as inflation. Indeed, the court recognized that the purchasing power of the dollars for a deal priced in December 2016 had declined in value by the time of the May 2017 closing. The court offered a “pop-culture illustration” of this principle, pointing to J. Wellington Wimpy’s offer to “gladly pay you Tuesday for a hamburger today,” as dollars paid next Tuesday are worth less than dollars paid today (a good deal for Wimpy).
Given that the statutory interest award in appraisal is measured from closing, even that aspect of the appraisal remedy does not capture the decline in the purchasing power of dollars used to measure the deal-price metric.
These principles continued to be applied today to a variety of appraisal targets but are especially appropriate to consider where there is a meaningful time span between signing and closing.