Fir Tree Value Master Fund v. Jarden Corp
Submitted: April 15, 2020, Decided: July 9, 2020 (2020)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Delaware law does not preclude a court in an appraisal action from relying solely on a corporation's unaffected market price as the fair value when the market is informationally efficient, and other traditional valuation methods (such as deal price, discounted cash flow, or comparable companies analysis) are found to be unreliable due to specific deficiencies.
Facts:
- Martin Franklin co-founded Jarden, a successful decentralized holding company with a large portfolio of consumer product brands.
- Newell Brands, also a large consumer products company, engaged Centerview Partners to identify acquisition targets, and Jarden made the list.
- In July 2015, Franklin, without initial board authorization, met with Newell's CEO Michael Polk and expressed willingness to sell Jarden to Newell.
- During an October 2015 meeting on Franklin's yacht, Franklin advised Newell that any offer for Jarden would have to "start with a six" ($60 per share), despite Jarden's stock trading in the high $40s.
- Franklin shared nonpublic, aggressive three-year financial projections forecasting 5% revenue growth with Newell, despite Jarden internally projecting growth "in the fours."
- Jarden's board rejected Newell's initial offer of $57 per share but authorized Franklin to seek a higher offer; Franklin then made an unauthorized counteroffer of $63 per share.
- Newell later offered $60 per share ($21 cash plus stock), which Jarden's board accepted and granted exclusivity during due diligence, thus disabling any market check.
- The merger was announced on December 14, 2015, and was approved by Jarden and Newell stockholders on April 15, 2016, valuing Jarden at $59.21 per share at closing.
Procedural Posture:
- Several large Jarden stockholders (Petitioners) refused to accept the merger price offered by Newell Brands and petitioned for appraisal in the Court of Chancery of the State of Delaware (the trial court/court of first instance).
- The Court of Chancery held a four-day trial involving twenty-five fact witnesses and three expert witnesses.
- The Court of Chancery stayed the case until the Supreme Court of the State of Delaware issued its decision in Verition Partners Master Fund Ltd. v. Aruba Networks, Inc.
- After considering the Aruba decision and receiving further submissions from the parties, the Court of Chancery found the fair value of each share of Jarden stock on the closing date of the merger at $48.31 using Jarden’s unaffected market price.
- Petitioners filed a motion for reargument, pointing out errors in the Court of Chancery's discounted cash flow (DCF) analysis, which the court adopted, leading to a revised DCF value of $48.23 per share.
- Petitioners (Fir Tree Value Master Fund, LP, Fir Tree Capital Opportunity Master Fund, LP, and Verition Multi-Strategy Master Fund Ltd.) appealed the Court of Chancery's judgment to the Supreme Court of the State of Delaware, with Jarden Corporation as the Appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does Delaware law prohibit a court in an appraisal action from relying solely on a corporation's unaffected market price to determine fair value, especially when other valuation methods are deemed unreliable and the market is efficient?
Opinions:
Majority - seitz, chief justice
No, Delaware law does not prohibit a court in an appraisal action from relying solely on a corporation's unaffected market price to determine fair value, especially when other valuation methods are deemed unreliable and the market is efficient. The Supreme Court affirmed the Court of Chancery’s judgment, finding $48.31 as the fair value of each Jarden share. The court reiterated that its recent appraisal decisions in DFC Global Corp., Dell, Inc., and Aruba Networks, Inc. did not rule out any recognized financial measurement of fair value, remaining true to the appraisal statute's command to consider "all relevant factors." The Court of Chancery correctly found that Jarden stock traded in a semi-strong efficient market, meaning its price quickly assimilated publicly available information. An event study by Jarden’s expert and the market’s reaction to disclosed projections indicated a lack of material nonpublic information not already incorporated into the market's estimate of Jarden's value, making the unaffected market price reliable. The court rejected the deal price as a reliable indicator of fair value due to a flawed sale process, where Jarden’s CEO acted with little board oversight, set an artificial ceiling, and no market check was performed. Additionally, the deal price likely included synergies that are excluded from fair value in appraisal actions. The petitioners’ comparable companies analysis was rejected for lacking credible comparables. Both parties' discounted cash flow (DCF) models were deemed unreliable due to wildly divergent conclusions and inputs, leading the Court of Chancery to construct its own DCF model which, after corrections, corroborated the unaffected market price but was not relied on as the primary source of value. The court concluded it did not abuse its discretion in its factual findings or the application of accepted financial principles.
Analysis:
This decision solidifies the Delaware Supreme Court's pragmatic approach to appraisal actions, emphasizing the broad discretion of the Court of Chancery to weigh "all relevant factors." It clarifies that an efficient market's unaffected trading price can serve as the sole reliable indicator of fair value when other valuation methods are compromised by process flaws (e.g., a non-robust sale process), unreliable expert inputs, or a lack of suitable comparables. The case reinforces the high bar for a deal price to be considered a strong indicator of fair value, particularly when significant synergies are present and the negotiation process is imperfect, thereby making it challenging for petitioners to use the deal price as a valuation floor. Law students should understand the importance of a well-documented and robust sale process for a deal price to hold sway in appraisal litigation.
