Should deal prices or market prices prevail over DCF in shareholder appraisal actions?

Should deal prices or market prices prevail over DCF in shareholder appraisal actions?

When shareholders object to a merger, they are, by statute, “entitled to an appraisal by the Court of Chancery of the fair value” of their shares, “exclusive of any element of value arising from the accomplishment or expectation of the merger.”

In a recent article, professors Joshua Mitts and Jonathan Macey consider the proper role of the efficient capital markets hypothesis (ECMH) in Delaware appraisal litigation. Recently, courts in Delaware have explicitly embraced the ECMH and, according to the authors, correctly have observed that it is superior to discounted cash flow (DCF) analysis as a means to determine fair value in appraisal proceedings. This issue arose again in the Delaware Supreme Court’s recent decision in Verition Partners Master Fund v. Aruba Networks.

In this article, Tiago Duarte-Silva speaks with Joshua Mitts, Senior Consultant to CRA and Associate Professor of Law at Columbia Law School, about how to assess value for the purposes of an appraisal action.

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