In re Appraisal of Solera Holdings, Inc., Consolidated C.A. No. 12080-CB (Del. Ch. July 30, 2018) (Bouchard, C.)
In this memorandum opinion, Chancellor Bouchard applied the Delaware Supreme Court’s recent endorsement of market efficiency principles in Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., et al. (“Dell”) and DFC Global Corporation v. Muirfield Value Partners, L.P. (“DFC Global”) by giving significant weight to market-based indicators of value where the sale process has sufficient evidence of market efficiency and fair play. The Solera Court, having determined that the sale process met the Dell indicia of reliability, appraised the fair value of Solera Holdings, Inc.’s (“Solera” or “Respondent”) stock at $53.95, consisting of the deal price of $55.85 per share less $1.90 per share of merger synergies.
Solera is a global leader in the data and software industry, trading publicly on the New York Stock Exchange until March 2016, when it was acquired by an affiliate of Vista Equity Partners (“Vista”) for $55.85 per share (the “Merger”). The Merger was the product of, among other things, a two-month outreach to private equity firms, a six-week auction conducted by an independent and fully authorized special committee (the “Special Committee”) guided by competent legal and financial advisors, and public disclosures that made clear Solera was for sale. A critical part of the Merger process was the Special Committee’s negotiation for a 28-day go-shop period, which allowed a key strategic competitor of Solera to continue to bid for the company. Ultimately, however, the competitor chose not to match Vista’s all-cash, fully financed bid of $55.85 per share, and the Merger subsequently closed on March 3, 2016, without Solera receiving any alternative proposals.
After the Merger closed, seven funds that were stockholders of Solera filed petitions for appraisal pursuant to 8 Del C. § 262 (the “Petitioners”). Following trial, the Court allowed for post-trial argument regarding the parties’ expert valuations and supplemental briefing to address the implications of recent appraisal decisions—in particular, Dell and DFC Global. Relying solely on a discounted cash flow analysis, Petitioners argued that the fair price of Solera should be $84.65 per share—an approximate 52% premium over the deal price. Meanwhile, Respondent originally argued for a fair value per share of deal price less synergies, before changing its position during supplemental briefing to argue that Solera’s fair value should be the “unaffected market price” of $36.39 per share.
In light of Dell and DFC Global, the Solera Court concluded that “deal price is ‘the best evidence of fair value’ when there was an ‘open process’ ... characterized by ‘objective indicia of reliability.’” According to the Court, the Merger satisfied the requisite Dell indicia of reliability because, “although not perfect,” the sale process “was characterized by many objective indicia of reliability” that supported giving the deal price, after adjusting for synergies, sole and dispositive weight in determining the fair value of Petitioners’ shares. Three primary considerations were cited in support of the Court’s conclusion, including “(i) the opportunity many potential buyers had to bid, (ii) the Special Committee’s role in actively negotiating an arm’s length transaction, and (iii) the evidence that the market for Solera’s stock was efficient and well-functioning.” The Court also recognized that synergies could be deducted from the deal price where, as here, the financial sponsor was an acquirer and had other portfolio companies with significant “touch points” from which synergies could be realized.
Finally, the Court rejected Petitioners’ DCF valuation as “not credible on its face” because it relied almost exclusively on predictions about Solera’s performance in the future that were “unavoidably speculative” and could result in wide valuation swings. The Court similarly gave no weight to Respondent’s DCF valuation following an admission by their own expert “that [Respondent’s] DCF valuation is ‘less reliable’ than the Merger price minus synergies valuation ... .” Accordingly, the Court gave dispositive weight to the deal price of $55.85 per share, less the estimated merger synergies of $1.90, in concluding that $53.95 per share represented the fair value of Petitioners’ shares of Solera.