Unless you grew up as a member of the fictional TV family The Brady Bunch, you have been in a heated argument. If you operate a business with multiple owners, you have likely seen more than your fair share of heated arguments.
Arguments among business owners, commonly referred to as shareholder disputes (at least in the case of corporations), regarding the governance of the business may arise for numerous reasons, and can be very heated, considering people’s livelihoods are on the line. One common type of shareholder dispute involves owners holding a minority share of the business (without the ability to control the operations of the business in this example) filing a dissenting shareholder action, and exercising their “appraisal rights” when the business is sold.
The appraisal rights protect minority owners in a business by granting them the ability to request an independent third-party valuation of the business to test the reasonableness of the purchase price negotiated between the majority owners and the buyer.
This article describes a dissenting shareholder case arising after Newell Brands, Inc. acquired Jarden Corporation.
Newell Brands, Inc. (“Newell”), a global consumer products company, acquired Jarden Corporation (“Jarden,” the “Company,” or “respondent”), another large consumer products company, for $59.21 per share in 2016. Newell owns numerous brands including Sharpie, Paper Mate, Elmer’s, Rubbermaid, Lenox and Graco. Jarden owns brands including Yankee Candle, Mr. Coffee, Sunbeam, Ball and Coleman. Following the transaction, four dissenting shareholders of Jarden (“petitioners”) filed appraisal petitions in the Court of Chancery of Delaware seeking an appraisal of the fair value of the Jarden stock on the merger date. Here are the facts of the case:
When: The court decided the case in July 2019.
The Company’s valuation expert believed that Jarden’s fair value was $48.01 per share on the merger date, while the petitioners’ expert determined a value of $71.35 per share for the Company.
The petitioners believed that the sale process leading to the merger was flawed because Jarden’s lead negotiator was willing to sell the Company for a low price and the Jarden board of directors failed to test the market before agreeing to sell Jarden to Newell.
The judge, Vice Chancellor Joseph Slights, III, sided with the petitioners, indicating that Jarden’s lead negotiator acted with little to no oversight by Jarden’s board of directors. However, the court ultimately determined that the unaffected market price for Jarden’s stock of $48.31 per share was the most appropriate indication of fair value. The court further supported this conclusion with their own independent discounted cash flow analysis.
V.C. Slights stated that the unaffected market price “is supported by credible, unrebutted expert testimony from Dr. Hubbard [Jarden’s valuation expert], including an event study that analyzed the market’s response to earnings and other material announcements.”
V.C. Slights also stated that “Dr. Hubbard’s expert analysis of the unaffected market price is corroborated by credible evidence, including that Jarden had no controlling stockholder, its public float was 93.9%, it was well covered by numerous professional stock analysts, its stock was heavily traded and it enjoyed a narrow bid-ask spread. As important, there was no credible evidence that material information bearing on Jarden’s fair value was withheld from the market as of the [date of the] merger. This market evidence was persuasive and I have given it substantial weight in my fair value determination.”
Valuation analysts should take note of V.C. Slights’ insight behind his decision, and keep it in mind when preparing future valuations. V.C. Slights’ thought process acts as an important reminder that all relevant market factors and background information should be considered when performing a business valuation.
Schneider Downs has significant experience in preparing business valuations for shareholder disputes, gift and estate tax, financial reporting, buying/selling and a range of other purposes. Please contact [email protected] for more information about our business valuation services.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.