Delaware Chancery favors merger price over DCF value

In re Ancestry, 2015 Del. Ch. LEXIS 21 (Jan. 30, 2015)

What role should the post-merger DCF-derived value play in a statutory appraisal action: represent the conclusive value or serve as a check on the market-derived value? This is the question the Delaware Court of Chancery recently answered.

At issue was the sale of Ancestry.com, a self-described “pioneer and the leader in the online family research market,” to a private equity investor. Ninety-nine percent of the voting shares approved of the transaction, but the dissenters asked the court for a fair value determination. The merger price represented a 41% premium on the unaffected trading price of company stock.

At trial, the Chancery gave a nod to the credentials of both parties’ experts but said their DCF valuations were “less than fully persuasive.” In essence, the experts used the sales price as a check on the post-merger DCF-derived value when the goal was to use a methodology capable of determining whether the sales price represented fair value.

Instead of relying on either expert’s analysis completely, the court performed its own DCF but, for various reasons, declined to adopt the resulting value as the fair value of the stock.

To find out why, click here.