The Delaware Court of Chancery found in favor of the target company that the merger consideration was the most reliable estimate of the fair value of the target company in Hyde Park Venture Partners Fund III L.P. et al. v. FairXchange LLC.
Retained by Ross Aronstam & Moritz LLP
Dissenting shareholders of FairXchange LLC (FairX), comprising two affiliated private equity funds, asserted appraisal rights following Coinbase’s acquisition of FairX in February 2022. FairX was an early stage commodity derivatives exchange. The dissenting shareholders sought a fair valuation hundreds of millions of dollars above the deal price. Counsel for FairX retained Cornerstone Research to support Drew Pascarella of Cornell University in providing expert testimony at trial.
Vice Chancellor Laster of the Delaware Court of Chancery found in favor of FairX.
In July 2024, Vice Chancellor Laster of the Delaware Court of Chancery found in favor of FairX, holding that the merger consideration was the most reliable estimate of the company’s fair value as of the time of the transaction.
Mr. Pascarella testified at trial that the dissenting shareholders’ valuation was unreliable and, rather, the standalone value of FairX was likely substantially less than the merger consideration. He based his findings on analysis of, among other market evidence:
- Transaction approval by all FairX’s sophisticated stockholders aside from the petitioners;
- FairX’s valuations in financing rounds prior to the merger;
- Precedent transactions;
Mr. Pascarella did not perform a DCF analysis due to his assessment that management’s projections were unreliable, a key point of disagreement with the petitioners’ expert who built his DCF valuation on management’s projections. The Delaware Court of Chancery’s opinion concluded that, consistent with Mr. Pascarella’s testimony, the management projections were speculative. The opinion rejected the petitioners’ expert’s valuation analysis, which was based on these projections. While acknowledging that the company’s early stage business plan made the company difficult to value, Vice Chancellor Laster concluded that the merger consideration was the most reliable estimate of the company’s fair value and awarded the petitioners the implied merger consideration of $10.42 per share.