Appraisal Litigation in a Going Private Transaction


Minority shareholders of the target company sought a judicial appraisal in Delaware’s Chancery Court.

Retained by Latham & Watkins

A publicly traded company was acquired by a private equity firm in a going private transaction. Certain minority shareholders claimed that the deal price was too low and sought a judicial determination of the fair value of the target company. Defense counsel retained Cornerstone Research and three experts, Wayne Guay of the University of Pennsylvania, Daniel Kessler of Stanford University, and a valuation expert.

Cornerstone Research worked with three experts on industry trends, executive compensation and incentives, the sales process, and the fair value of the target company.

Petitioners alleged that the merger price was unreliable and inadequate, and one of their experts asserted that the fair value of the target company was at least 43 percent higher than the deal value. Our valuation expert rebutted this expert and opined that the fair value of the target company as a stand-alone entity was no higher than the deal price. He based his conclusion on contemporaneous market factors, including the actions of potential acquirers, the use of a robust sales process, and the target company’s premium to its unaffected stock price implied by the merger consideration. In further support of his conclusion, our expert used commonly accepted valuation methods, including an analysis of comparable companies, an analysis of precedent transactions, and a discounted cash flow (DCF) analysis, to present an appraisal of the target company.

Petitioners also asserted that executives who retained equity in the new, privately held company had incentives to not seek a maximum price for shareholders of the target company. Professor Guay analyzed issues regarding compensation and incentives. He determined that the company executives did have an economic incentive to achieve the highest possible price, making their incentives aligned with those of the shareholders.

Professor Kessler analyzed certain market challenges the target company faced on a going-forward basis. He opined that these challenges were likely to lead to more limited prospects for future growth and profitability for the target company.

The parties settled on favorable terms for our client before the case was set to go to trial.

For more information on this case, contact Katie Galley or Frank Schneider.

Case Experts

Wayne R. Guay

Yageo Professor of Accounting,
The Wharton School,
University of Pennsylvania

Daniel P. Kessler

Professor of Political Economy, Stanford Graduate School of Business;
Professor of Law, Stanford Law School;
Professor (by courtesy) of Health Research and Policy, Stanford School of Medicine;
Senior Fellow, Hoover Institution and Stanford Institute for Economic Policy Research, Stanford University;
Senior Advisor, Cornerstone Research