Lawrence A. Hamermesh

The Fair Value of Cornfields in Delaware Appraisal Law

The Delaware Supreme Courts opinions in Weinberger and Technicolor have left a troublesome uncertainty in defining the proper approach to the valuation of corporate shares. That uncertainty - increasingly important as going private mergers become more frequent - can be resolved by a blend of financial and doctrinal analysis. The primary problem - the potential opportunism by controlling shareholders in timing going private mergers - can be addressed by a more complete understanding of corporate finance. The definition of fair value must include not only the present value of the firms existing assets, but also the future opportunities to reinvest free cash flow, including reinvestment opportunities identified, even if not yet developed, before the merger. This issue has been incompletely articulated by the courts. On the other hand, value created by the merger that can only be achieved by means of the merger itself - such as reduced costs of public company compliance - should not be included in determining fair value. We also show that except in the case of acquisitions by third parties (where actual sale value, minus synergies, is a useful measure of fair value), hypothetical third party sale value does not and should not ordinarily be taken as a measure of fair value.

The Role of Judicial Opinions in Shaping M&A Practice

This chapter of the forthcoming Research Handbook on Mergers and Acquisitions reviews several aspects of merger and acquisition practice that reflect strong influence from opinions of the Delaware courts. Such aspects include the use of fairness opinions, the demise of the two-tier tender offer, the effect of poison pills, the use of special committees and majority of the minority votes in freezeouts, deal protection measures, MAC clauses, and disclosure of investment banker conflicts.