Golden Telecom, Inc. v. Global GT LP and Roam-Tel Partners v. AT&T Mobility Wireless Op. Holdings Inc.: Developments in the Law of Appraisal
February 1, 2011
In Golden Telecom, the Supreme Court declined to impose strict requirements on the trial court’s determination of fair value, including deference to merger price or a requirement that the subject company be bound by previously disseminated company-specific data. In AT&T Mobility, the Court of Chancery held that a stockholder has the entire 20-day statutory period to consider whether or not to seek appraisal, and may even revoke a prior waiver of appraisal rights during that period, under certain circumstances.
Golden Telecom, Inc. v. Global GT LP
In Golden Telecom, Inc. v. Global GT LP, — A.3d —, 2010 WL 5387589 (Del. Dec. 29, 2010), the parties to an appraisal action below cross-appealed the Court of Chancery’s ruling, which determined fair value for Golden Telecom, Inc.’s (“Golden Telecom”) stock to be $125.49 per share in circumstances where: (1) Golden Telecom had formed a special committee to negotiate the merger, (2) the stock had never traded above the $60 range prior to a leak into the market of the merger negotiations, and (3) the special committee successfully negotiated the offer up from an initial $80 per share offer to the final deal price of $105 per share, with no matching rights and the absence of any alternative offers despite months of market knowledge of the deal.
Golden Telecom appealed based on, among other things, the large discrepancy between the deal price of $105 per share and the Court’s determination of fair value at $125.49 per share. The appeal sought, in pertinent part, the announcement of a rule enshrining the price paid in a deal containing all of the typical indicia of fairness required under Delaware’s law of fiduciary duty as either conclusively or presumptively indicative of fair value in an appraisal proceeding.
In its opinion, the Supreme Court affirmed Vice Chancellor Strine’s approach to valuation, noting that in the context of an appraisal proceeding, the use of the deal price as an indicia of fair value is entirely up to the discretion of the Court:
Requiring the Court of Chancery to defer–conclusively or presumptively–to the merger price, even in the face of a pristine, unchallenged transactional process, would contravene the unambiguous language of the statute and the reasoned holdings of our precedent. It would inappropriately shift the responsibility to determine “fair value” from the court to the private parties.
Similarly, the Court rejected the cross-appellees’ request that it adopt a bright-line rule prohibiting the corporation in an appraisal proceeding from relying on company-specific data which differed from the company-specific data utilized by the corporation’s financial advisor in connection with its fairness opinion. The Court again turned to the language of the statute, noting that “Section 262(h) controls, it is unambiguous, and it nowhere requires the appraising authority to require the parties to adhere to previously prepared data.” The Court noted that to hold otherwise “would pay short shrift to the difference between valuation at the tender offer stage … and valuation at the appraisal stage,” which involve the divergent goals of determining a fair price in the context of a specific transaction as opposed to determining fair value of a company as a going concern.
In Golden Telecom, the Court reinforced its view that “appraisal is, by design, a flexible process … and the adoption of strict rules to govern the process” would contravene the statutory scheme “vest[ing] the court with significant discretion to consider ‘all relevant factors.’”
Roam-Tel Partners v. AT&T Mobility Wireless Op. Holdings Inc.
In Roam-Tel Partners v. AT&T Mobility Wireless Op. Holdings Inc., 2010 WL 5276991 (Del. Ch. Dec. 17, 2010), the Court resolved a question of first impression regarding whether, during the 20-day statutory period for demanding appraisal, a minority stockholder has the ability to change its mind about whether to seek or withdraw a demand for appraisal.
In AT&T, the Court was asked to determine the members of the appraisal class in an action arising from a short-form merger in which a controlling stockholder cashed out the minority. One would-be member of the class, ARAP Partners (“ARAP”), had submitted its stock certificates along with a letter of transmittal indicating that it would not seek appraisal, accepted (but did not cash) a check for the merger consideration, and subsequently, but prior to the expiration of the statutory period, returned the check and revoked its waiver.
The Court concluded that ARAP had perfected its appraisal rights and was a proper member of the appraisal class:
Where a minority stockholder perfects its right to an appraisal within the statutory election period and does not accept the merger consideration in the sense that it does not exercise dominion over that merger consideration, that stockholder is entitled to participate in an appraisal action notwithstanding the fact that it made a previous, but promptly revoked, waiver of such right to an appraisal. Absent actual or other prejudice to the surviving corporation, the appraisal statute is best implemented giving stockholders the full 20 days to decide whether to demand appraisal.
The Court noted that, while ARAP may have waived its statutory right to an appraisal, waiver and estoppel are equitable doctrines and the waiver could not be enforced in the absence of prejudice to, or detrimental reliance on the part of, AT&T. The Court emphasized this point, explaining that “had ARAP cashed or further negotiated the check [for the merger consideration], or had AT&T Mobility initially given ARAP cash …, AT&T would have a claim that it had relied to its detriment on ARAP’s waiver.” The Court concluded that, in the absence of prejudice to the company, the “already brief 20 day election period” should not be truncated further by barring a minority stockholder from retracting its waiver and perfecting appraisal rights during the statutory period.