By Gilbert E. Matthews, CFA, Sutter Securities, Inc. (San Francisco, Calif., USA)
This year to date has been another active period for valuation cases in the Delaware courts. The Supreme Court reversed one 2018 Court of Chancery decision and affirmed another, and the Court of Chancery decided four valuation cases; these decisions are discussed below. The predominant theme is that, in arm’s-length transactions, appraisal value continues to be based primarily on the transaction price rather than on discounted cash flow.
The exhibit on page 3 shows that, since 2006, transaction price has been the dominant metric in arm’s-length transactions, while most appraisals in related party transactions have been determined using DCF. Since 2013, only one appraisal in an arm’s-length transaction (AOL Inc.1) was based on the court’s DCF calculation; the others that used DCF considered it only as confirmatory of the valuation based on transaction price.