In re Appraisal of Stillwater Mining Company ( 2019 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE APPRAISAL OF STILLWATER ) Consol. C.A. No.
MINING COMPANY ) 2017-0385-JTL
MEMORANDUM OPINION
Date Submitted: May 23, 2019
Date Decided: August 21, 2019
Samuel T. Hirzel, II, Elizabeth A. DeFelice, HEYMAN ENERIO GATTUSO & HIRZEL
LLP, Wilmington, Delaware; Lawrence M. Rolnick, Steven M. Hecht, Jonathan M. Kass,
Glenn McGillivray, LOWENSTEIN SANDLER LLP, New York, New York; Attorneys
for Petitioners.
S. Mark Hurd, Lauren Neal Bennett, MORRIS, NICHOLS, ARSHT & TUNNELL LLP,
Wilmington, Delaware; James R. Warnot, Jr., Adam S. Lurie, Brenda D. DiLuigi, Nicole
E. Jerry, Elizabeth M. Raulston, LINKLATERS LLP, New York, New York; Attorneys for
Respondent.
LASTER, V.C.
This post-trial decision determines the fair value of the common stock of Stillwater
Mining Company (“Stillwater” or the “Company”) as of May 4, 2017, which is when
Sibanye Gold Limited completed its acquisition of Stillwater through a reverse-triangular
merger (the “Merger”). Pursuant to an agreement and plan of merger dated December 9,
2016 (the “Merger Agreement”), each share of Stillwater common stock was converted at
closing into the right to receive $18.00, subject to the right of each holder to eschew the
merger consideration and seek appraisal.
The petitioners perfected their appraisal rights and litigated this appraisal
proceeding. They contended that Stillwater’s fair value was $25.91 per share. To justify
this outcome, they relied on an expert who valued Stillwater using a discounted cash flow
(“DCF”) model.
The respondent in an appraisal proceeding is technically the surviving corporation,
but the real party in interest is the acquirer. The petitioners’ true opponent in this
proceeding was Sibanye.
Sibanye contended that Stillwater’s fair value was $17.63 per share. To justify this
outcome, Sibanye relied on a combination of metrics, including the deal price, Stillwater’s
unaffected trading price with an adjustment for a valuation increase between the unaffected
date and closing, and an expert valuation based on a DCF model.
Sibanye proved that the sale process was sufficiently reliable to make the deal price
a persuasive indicator of fair value. Although Sibanye argued for a deduction from the deal
price to account for value arising from the Merger, Sibanye failed to prove that an
adjustment was warranted.
The parties engaged in lengthy debate over whether Stillwater’s adjusted trading
price could provide a persuasive indicator of fair value. The reliability of the adjusted
trading price depended on the reliability of the unaffected trading price, and both sides
engaged experts who conducted analyses and offered opinions about the attributes of the
market for Stillwater’s common stock. The evidence demonstrated that Stillwater’s trading
price could provide a persuasive indicator of value, but that it was a less persuasive
indicator than the deal price. This decision therefore does not use a trading price metric.
Neither side proved that its DCF valuation provided a persuasive indicator of fair
value. The experts disagreed over too many inputs, and the resulting valuation swings were
too great, for this decision to rely on a model when a market-tested indicator is available.
This decision concludes that the deal price is the most persuasive indicator of fair
value. Relying on any of the other valuation metrics would introduce error. The fair value
of the Stillwater on the valuation date was therefore $18.00 per share.
I. FACTUAL BACKGROUND
The parties generated an extensive evidentiary record. They commendably reached
agreement on 283 stipulations of fact. During four days of trial, they introduced 909
exhibits and lodged twenty-one depositions in evidence. Three fact witnesses and seven
expert witnesses testified live. What follows are the court’s findings based on a
preponderance of the evidence.1
1
Citations in the form “PTO ¶ ––” refer to stipulated facts in the pre-trial order. Dkt.
209. Citations in the form “[Name] Tr.” refer to witness testimony from the trial transcript.
Citations in the form “[Name] Dep.” refer to witness testimony from a deposition
2
A. The Company
At the time of the Merger, Stillwater was a Delaware corporation engaged in the
business of extracting, processing, smelting, and refining minerals from an orebody known
as the J-M Reef. Located in in the western United States, the J-M Reef contains deposits
of palladium, platinum, and rhodium, which are known in the mining industry as “platinum
group metals” or “PGMs.” These metals are rare, and the J-M Reef is the only PGM asset
in the United States. The other principal sources of PGMs are located in South Africa,
Russia, and Zimbabwe, which present significantly greater political risk.
Stillwater was headquartered in Littleton, Colorado, and its common stock traded
on the New York Stock Exchange under the symbol “SWC.” Stillwater’s trading price was
heavily influenced by commodity prices for palladium and, to a lesser degree, platinum.
At the time of the Merger, Stillwater’s operations consisted of two producing mines
in south central Montana: the Stillwater Mine and the East Boulder Mine. Stillwater’s other
assets were development projects or exploratory properties that were not yet generating
revenue.
At the time of the Merger, Stillwater’s two development projects were Blitz and
Lower East Boulder. Blitz expanded the Stillwater Mine eastward. Lower East Boulder
was a contemplated expansion of the East Boulder mine. Stillwater’s two exploratory
transcript. Citations in the form “JX –– at ––” refer to a trial exhibit with the page
designated by the last three digits of the control or JX number. If a trial exhibit used
paragraph or section numbers, then references are by paragraph or section.
3
properties in the J-M Reef were Iron Creek and the Boulder Extension. Outside of the J-M
Reef, Stillwater owned two other exploratory properties: (i) Altar, a copper-gold-porphyry
deposit in the San Juan province of Argentina, and (ii) Marathon, a copper-PGM deposit
in Ontario, Canada.
At the time of the Merger, Michael “Mick” McMullen served as Stillwater’s
President and CEO and as a member of its board of directors (the “Board”). The other six
members of the Board were independent, outside directors:
 George Bee was a mining engineer who had held senior management positions
or served on the boards of other mining companies.
 Patrice Merrin had served as an executive or director for numerous companies
and was a director of Glencore plc, a multi-national mining firm. Merrin chaired
the Board’s Corporate Governance and Nominating Committee.
 Peter O’Hagan had worked at Goldman Sachs for nearly twenty-three years,
including as co-head of its global commodities business.
 Michael Parrett was a Chartered Professional Accountant who had served in
senior management positions and as a director for other mining companies.
 Brian Schweitzer had served as Governor of Montana. He was Chairman of the
Board.
 Gary Sugar had spent thirty-two years at RBC Capital Markets, where he
specialized in the mining sector. He served on the boards of other mining
companies.
B. McMullen Convinces The Board To Build A Mid-Cap Mining Company.
McMullen was hired in December 2013 as a “turnaround CEO.” McMullen Tr. 814–
16; see Schweitzer Tr. 170. By early 2015, McMullen had refocused Stillwater’s
operations, cut costs, and generally turned the Company around. At this point, McMullen
believed that market conditions favored the creation of a mid-cap mining company. He
4
thought Stillwater could achieve this outcome either by growing through acquisitions or by
combining with another industry player through a merger of equals.
During a meeting of the Board in June 2015, McMullen gave a lengthy presentation
on Company strategy that devoted twenty-six slides to various alternatives. See JX 44 at
‘848 to ‘874. McMullen’s presentation discussed means of increasing earnings, increasing
the trading multiple, and optimizing the capital structure, and then turned to the pros and
cons of selling some or all of the business. The presentation was particularly negative about
the prospect of a sale. See id. at ‘866 to ‘868. In another presentation, McMullen devoted
over forty slides to discussing candidates for acquisitions or mergers of equals. See id. at
‘929 to ‘970.
In addition to his own presentation, McMullen provided the Board with
presentations from three investment banks. McMullen had a close relationship Dan Vujcic,
then an investment banker with Jefferies Financial Group, Inc., and the Jefferies
presentation was the most detailed. It analyzed an acquisition of another base metals
company, focusing on Sandfire Resources NL, Western Areas Ltd., and Panoramic
Resources Ltd. It also analyzed the possible acquisition of a downstream company, a
possible spinoff of Stillwater’s processing and trading business, and the option of
maintaining the status quo. See id. at ‘014 to ‘080. A presentation from BMO Capital
Markets was more of a high-level pitch book, but it identified selected acquisition
opportunities. See id. at ‘081 to ‘183. A presentation from Nomura Holdings, Inc. discussed
alternatives for refinancing Stillwater’s convertible bonds. See JX 44 at ‘164 to ‘182.
5
Sibanye has argued that this meeting marked the start of the Board’s careful and
thoughtful consideration of a sale of the Company, but the purpose of the meeting was not
to prepare the Board for a sale. McMullen hoped to convince the Board to back him in
creating a mid-cap mining company.2 The Board, however, resisted, recalling unsuccessful
acquisitions that had necessitated hiring a turnaround CEO in the first place. During the
June 2015 meeting, the Board did not provide McMullen with a mandate to pursue any
strategic options. See JX 43.
After the June 2015 meeting, McMullen kept looking for opportunities to build a
mid-cap mining company. During the second half of 2015, McMullen worked with
Jefferies, BMO, and Citigroup to identify acquisition targets and merger-of-equals
candidates.3 McMullen was focused on an acquisition, particularly “something not in the
PGM space to diversify risk.” JX 59.
2
The two slides in the management presentations that addressed a sale contained
comments like “[f]inding a willing buyer with higher priced currency is difficult,” “[m]uch
of the value from Blitz, Lower East Boulder and recycle ramp up yet to be recognized by
the market and potential buyers,” and the “[r]ecent downward trend in PGM prices not the
right environment in which to be a seller.” Id. at ‘866 to ‘867. Out of the nearly 190 slides
in the banker presentations, only one discussed a possible sale. There, BMO opined that
selling was “unlikely to be a value maximizing strategy until value has been extracted from
all the other alternatives” available to the Company. Id. at ‘108.
3
See, e.g., JX 50 at ‘586 to ‘594; JX 52; JX 53; JX 55; JX 57; JX 58; JX 67; JX 68;
PTO ¶¶ 138–39. Although principally focused on acquisitions, McMullen asked BMO in
an October 2015 email for its views about “who would potentially be a buyer of Stillwater
in an M+A deal?” JX 57 at ‘920. BMO sent back a list of twenty-one candidates, but
warned that “[g]enerally as a whole we would say that we do not believe there is a high
level of current interest and capability for an acquisition of Stillwater.” Id. at ‘919.
6
During a meeting of the Board in October 2015, McMullen gave another
presentation on the Company’s strategy. See JX 61 at ‘102 to ‘127. He highlighted the risks
Stillwater faced because of its dependence on palladium, which was used principally in
catalytic converters. His presentation discussed the disruptive threat posed by electric cars,
which could displace gasoline-powered cars and render catalytic converters obsolete. See
id. at ‘105 (“Know Your Enemy—Electric Cars”). He recommended making a diversifying
acquisition from which Stillwater would “emerge as a multi mine, multi commodity and
multi jurisdiction mid cap miner with a bullet proof balance sheet.” Id. at ‘127. He then
reviewed six possible candidates: Sandfire, Western Areas, Panoramic, Northern Star
Resources Ltd., Imperial Metals, and Hecla Mining Co. See id. at ‘128 to ‘179. He also
circulated a presentation from Jefferies that discussed an acquisition of Sandfire. See id. at
‘249 to ‘292. During the weeks after the meeting, Jefferies provided McMullen with more
detailed analyses of a deal with Northern Star, a large gold producer in Australia. See JX
67; JX 68.
In December 2015, McMullen and a team from Stillwater visited the mining
operations of Northern Star, where McMullen had a close relationship with senior
management. During the visit, McMullen met with the CEO and CFO of Northern Star and
discussed a potential merger of equals. See PTO ¶ 145; JX 73 at ‘867; see also JX 61 at
‘282 to ‘286; JX 67. At this point in time, a merger of equals with Northern Star was
McMullen’s top choice among Stillwater’s strategic options.
During meeting of the Board in January 2016, McMullen gave another presentation
on the Company’s strategy. See JX 86 at ‘002 to ‘040. As with the meetings in June and
7
October 2015, his goal was to convince the Board to authorize him to build Stillwater into
a mid-cap metals company. See JX 78 (McMullen discussing his desire to “come away
from [the January] board meeting with a clear mandate”). McMullen recommended a
merger of equals with Northern Star as the best option, telling the Board that the transaction
“would make a very strong mid cap precious metals miner.” JX 86 at ‘038. If Northern Star
would not engage, then he recommended acquiring Sandfire or Western Areas. See id. at
‘039. He also identified some smaller acquisitions that “should be pursued independently”
and “[r]egardless of whether Stillwater completes one of the larger deals.” Id. at ‘040. Later
in the meeting, he provided additional information about the proposed M&A strategy and
further detail about Northern Star, Sandfire, Western Areas, Panoramic, Hecla, and
Imperial. See id. at ‘’320 to ‘367. McMullen also distributed a presentation from Jefferies
that analyzed mergers with Northern Star and Western Areas. See id. at ‘275 to ‘319
At the conclusion of the January 2016 meeting, the Board gave management a
mandate, but it was broad and vague. According to the minutes, “[t]he Board provided
management with a sense of the Board for management to continue to pursue the options
as discussed, but to return to the Board for any final decision.” JX 90. During this litigation,
Sibanye has argued that this mandate authorized management to pursue a sale of the
Company, but that is not accurate.4 McMullen put it best when he told a banker at
4
Only one slide in McMullen’s presentation referenced a sale of the Company, and
it advised that there was a “[v]ery limited number of potential buyers” and that because
“commodity prices and sentiment are low,” the Company “would not realize full value
potentially.” JX 86 at ‘025. By contrast, he presented multiple slides discussing positively
8
Blackstone that he had “finally convinced the Stillwater board to go off and buy some
things.” JX 93 at ‘628; see Schweitzer Tr. 187.
C. The Company’s Stock Price
While McMullen was trying to convince the Board to let him “buy some things,”
Stillwater’s stock price was falling. The decline began in June 2016 and continued steadily
through December. Over the course of this six month period, Stillwater’s stock price fell
by over 40%, dropping from $14.46 per share on June 1 to $8.57 per share on December
31. The market drop did not reflect any problems with Stillwater’s operations. Instead, it
reflected a decline in the spot price of palladium, which fell by 27% from $773.70 per
ounce on June 1 to $562.98 per ounce on December 31. PTO Exs. A, B.
During the Board meeting in January 2016, McMullen had told the Board that
“[d]espite our stock being down 40%, we still have options open to us today.” JX 86 at
‘012. But during the weeks following the January 2016 meeting, the stock price fell further.
On January 19, it closed at $5.29 per share, down 38% from its closing price of $8.57 per
share on December 31. The drop corresponded with further declines in the spot price of
palladium, which closed on January 19 at $494.83 per ounce, down another 12% from its
close of $562.98 per ounce on December 31.
The Company’s dismal stock performance caused McMullen to conclude that
Stillwater did not have a currency that it could use for either an acquisition or a merger of
how the Company could deploy its “capital and currency” (its stock) to make an
acquisition. See id. at ‘026 to ‘035.
9
equals. JX 93 at ‘628 (“[U]nfortunately the stock price has collapsed in the last 2 weeks
and I don’t think Stillwater has the currency to do anything anymore. Ce [sic] la vie.”); see
McMullen Tr. 826; JX 97 at ‘308 to ‘310, ‘313. He felt Stillwater had missed its
opportunity to expand and was now just an “an option play on the P[alladium] price.” JX
93 at ‘628; see JX 97 at ‘313
At this point, McMullen told a banker at Blackstone that “[s]itting around for one
or two years waiting for the price to recover” was “not my idea of a job.” McMullen Tr.
828; JX 93 at ‘628. McMullen did not view himself as an “operational CEO.” McMullen
Tr. 814–16. He thought he “would become bored.” McMullen Tr. 828. With his contract
set to expire at the end of the year, McMullen began thinking about what he would do next,
including the possibility of building a mining portfolio company for Blackstone. See
McMullen Tr. 828; JX 93 at ‘627 to ‘628.
D. Sibanye Contacts McMullen.
On January 30, 2016, Sibanye reached out through BMO to arrange a meeting
between McMullen and Sibanye’s CEO, Neal Froneman. Without telling the Board,
McMullen accepted.
The meeting took place at an industry conference on March 1, 2016. PTO ¶ 161.
When Froneman broached the subject of buying Stillwater, McMullen was receptive. He
asked Froneman to provide “an informal proposal” in writing that included “an idea of
valuation” and “transaction structure.” JX 109 at ‘976; see PTO ¶ 164. Froneman had the
impression that a deal “was doable if we got the valuation right.” JX 109 at ‘976.
10
After the meeting, Froneman asked McMullen for “specific guidance” about what
would be acceptable. JX 110. McMullen indicated that Sibanye’s offer should include “a
large cash component.” JX 113 at ‘175. He also told Froneman during these early
discussions that an acceptable transaction should be priced at a premium of 30% over
Stillwater’s thirty-day volume-weighted average price (“VWAP”). Stewart Dep. 39; see
also JX 162 at ‘283. Froneman agreed in principle to this pricing metric, and he began
organizing a team to visit Stillwater’s mines. See JX 113 at ‘174 to ‘175. Froneman asked
to enter into a confidentiality agreement to facilitate diligence, but McMullen rejected the
request, commenting that he wanted “to see some form of indicative, non-binding and
highly confidential terms of a transaction before we go too far down the path.” Id. at ‘174.
McMullen took all of these actions without involving the Board. Indeed, he did not
even inform the Board about Sibanye’s approach. See Schweitzer Tr. 189–92; Wadman Tr.
657. Instead, on March 25, 2016, he agreed to extend his employment for an additional two
years. JX 114 § 4.1. His original employment agreement had been scheduled to terminate
on December 31, 2016, and the Board had expected that because McMullen was a short-
term, turnaround CEO, he would not stay beyond that date. Wadman Tr. 670–71; see
Wadman Dep. at 341; Schweitzer Tr. 170, 193. But with acquisition talks in the offing,
McMullen agreed to a new deal. See JX 114.
The new employment agreement permitted McMullen to serve concurrently as a
director of Nevada Iron Limited and New Chris Minerals Limited, which later became GT
Gold Corp. See JX 114 § 3.1, Ex. A. During 2016, McMullen did more than serve on the
boards of these companies. He became Executive Chairman and CEO of Nevada Iron, and
11
he served as Non-Executive Chairman and President of New Chris. See McMullen Tr. 863–
64; McMullen Dep. 45, 553; JX 93 at ‘628. Both companies were Australian resource firms
whose equity comprised a significant portion of McMullen’s net worth. JX 157 at ‘315;
see McMullen Tr. 709, 863–64. Over the next year, while McMullen was busy selling the
Company, he also caused Nevada Iron and New Chris to engage in transformative
transactions.5
In May 2016, the Board held its next regular meeting. In connection with that
meeting, McMullen did not inform the Board about Sibanye’s approach or his discussions
with Sibanye.6
E. Sibanye Submits An Indication Of Interest.
During the first week of June 2016, executives from both Sibanye and Northern Star
toured the Company’s mines. PTO ¶¶ 171–72. Sibanye toured as part of their exploration
of a potential acquisition of the Company. Northern Star toured separately, ostensibly as
part of a mutual benchmarking exercise but really in connection with a potential merger of
equals. McMullen and the Company’s CFO, Christopher Bateman, led Sibanye and
Northern Star on separate tours and ensured that neither saw one another. McMullen
5
See JX 138; JX 139 at ‘831; JX 154 at ‘087; JX 155; JX 157 at ‘315; McMullen
Tr. 709–10; see also JX 349.
6
See Schweitzer Tr. 189–90. McMullen testified that he told Schweitzer and Merrin
about Sibanye’s approach after his initial meeting with Froneman. He also claimed that he
kept the Board informed as discussions progressed. McMullen’s self-interested testimony
conflicted with Schweitzer’s more credible testimony and other record evidence.
12
claimed that despite keeping the two teams separate, each knew that the other was on site
because McMullen and Bateman would alternate between the tours and McMullen had
them both sign the visitors log. McMullen said he did this as a clever way to create
competition between the firms. See McMullen Tr. 726–27.
After the visits, McMullen believed that a deal with Sibanye was more likely than
with Northern Star. See JX 140 at ‘048; JX 142. Toward the end of June 2016, Northern
Star reported that they were primarily interested in a joint venture involving Blitz. JX 145
at ‘845. That possibility did not interest McMullen. Id. Meanwhile, McMullen pushed
Sibanye to provide an indication of interest in advance of the Board’s next meeting, which
was scheduled for July 28, 2016.7
Sibanye began working with Citigroup to develop its bid. Two of the Citigroup
bankers had previously advised McMullen and Bateman about the Company’s alternatives.
As part of its advice, Citigroup had recommended against a sale of the Company because
of the limited universe of potential buyers. See JX 32 at ‘829; cf. JX 42 at ‘422.
On July 21, 2016, Sibanye provided McMullen with a non-binding indication of
interest to acquire Stillwater at $15.75 per share in cash, which valued the Company at $1.9
billion. PTO ¶ 177; JX 165. The letter described that price as reflecting “a 30% premium
7
See JX 152 at ‘532 ‘533. At trial, McMullen testified that after Sibanye conducted
its site visit, the Board told him that they wanted “some sort of written expression of
interest” before starting “a data room process.” McMullen Tr. 728–29. That testimony was
not credible. The evidence indicates that McMullen did not brief the Board about a
potential transaction with Sibanye until the July 2015 board meeting. See Schweitzer Tr.
189–90.
13
to Stillwater’s volume-weighted average share price [(VWAP)] of US$12.12 over the last
20 trading days prior to 20 July 2016.” JX 165 at ‘880; see PTO ¶ 178.
As suggested by Sibanye’s offer, Stillwater’s stock price had mostly recovered,
reflecting a recovery in the price of palladium. At the beginning of July 2016, the stock
closed at $12.25 per share, up 132% from its low of $5.29 in January. During that same
period, the palladium spot price had increased 22% to $605.63 per ounce. PTO Exs. A, B.
Despite the stock’s performance, McMullen did not revisit potential acquisitions or a
merger of equals. He was now focused on selling the Company. See JX 156 (email from
Vujcic to McMullen stating, “[W]e’ll make sure the company gets sold. Don’t worry about
that.”).
F. McMullen Presents The Indication Of Interest To The Board.
On July 27 and 28, 2016, the Board held a regularly scheduled meeting. At the end
of the two-day meeting, the directors held a forty-five minute “executive session” with
McMullen, who distributed and walked through a presentation titled “Business
Development Update.” JX 151 at ‘551; see Schweitzer Tr. 193; JX 526 at ‘377; Wadman
Tr. 657–64. The presentation compared the Company’s recent performance to various
potential transaction partners, then described the pros and cons of transactions with
Northern Star and Sibanye. After summarizing the terms of Sibanye’s expression of
interest, the presentation described the premium as “within the right range for shareholder
value” and “broadly within the range of mining transactions.” JX 151 at ‘568. McMullen
gave his “strong recommendation . . . to engage with Sibanye and attempt to conclude [due
diligence] as quickly as possible (likely to take 2 months) and achieve a higher price.” Id.
14
McMullen added that he would “look to engage with other potential bidders on a low key
and informal basis to determine if there are alternative bidders.” Id. He warned: “The list
of other potential bidders is short given the commodity, size of transaction and whether
[Stillwater’s] shareholders would want their paper. The process of determining if there are
alternatives will not be a long process.” Id. He also told the directors that “[t]he market
appears to be open for people to carry out M+A, and asset values have risen to a level
where you want to be a seller rather than a buyer.” Id.
Brent Wadman, the Company’s General Counsel, became concerned about what
took place during the July meeting. He had not been asked to stay for the executive session
and was not given access to McMullen’s presentation. See JX 526 at ‘377; Wadman Tr.
657–64. He suspected that McMullen was running a sale process on his own, without Board
oversight, and potentially using it as a means of exiting from the Company. Wadman
believed that as General Counsel, he should have been involved. After the July meeting,
Wadman asked McMullen to include him in the planning process. McMullen rebuffed him,
saying that Wadman would be “brought in at a later date” and “offer[ing] no other
information.” JX 526 at ‘377; Wadman Tr. 658.
After the July meeting, McMullen told Sibanye to submit its list of due diligence
questions so the Company could start pulling the information together. He told Sibanye to
direct all inquiries to himself or Bateman. See PTO ¶ 181; JX 183.
G. McMullen Remains Committed To Sibanye.
On August 9, 2016, Stillwater and Sibanye entered into a confidentiality agreement,
and Sibanye gained access to the data room. PTO ¶ 183; JX 525 at 26; see also JX 194. On
15
August 10, the Board met again. See JX 193. McMullen testified that at this meeting, the
Board instructed him “to go out and . . . to sign the NDAs with the likes of Sibanye, and
then, also, . . . to get as much interest as possible.” McMullen Tr. 835.
Rather than working closely with an investment bank to develop a process designed
to generate “as much interest as possible,” McMullen pressed forward with Sibanye. He
interacted with some investment banks, but in a haphazard and unstructured way. For
example, back in July 2016, a Macquarie banker had asked McMullen to meet for a market
update. See JX 167. On August 10, the same day that the Board met, Macquarie proposed
a formal engagement. Five days later, McMullen told Macquarie that it was “a bit early for
us I think to be signing anyone up.” JX 196.
One week after the Board meeting, on August 18, 2016, McMullen and Bateman
met with Bank of America Merrill Lynch (“BAML”), who had arranged the meeting to
pitch Stillwater on possible mergers of equals. See JX 199; see also JX 163; JX 190. The
BAML presentation materials did not discuss a sale of the Company or mention Sibanye,
and McMullen and Bateman did not use the meeting to identify other possible acquirers.
Instead, the BAML bankers got “the sense . . . that a sale was a possibility,” and so they
decided on their own to “pivot[] to focus more, as time went on, on that.” Hunt Dep. 35.
Acting on their own, the BAML bankers developed a list of fifteen possible
acquirers whom they approached independently, pitching a potential acquisition of
Stillwater as “a banker idea.” JX 206 at ‘360. The record does not reveal exactly how many
companies BAML contacted, what the BAML bankers said, or how seriously the
companies took the pitch. Because BAML did not know that Stillwater was in discussions
16
with Sibanye, they reached out to Sibanye as part of these efforts, ironically describing that
a deal for Stillwater would be “[a] little pricey.” JX 207 at ‘093. In the end, five companies
expressed interest: Sibanye; Hecla; Coeur Mining, Inc.; CITIC Resources Holdings
Limited, and Anemka Resources Ltd. See JX 211; JX 213; JX 214; JX 217 at ‘588 to ‘591.
Having made these calls on their own, the BAML bankers held a follow-up meeting
with McMullen and Bateman on September 7, 2016. The pitch book identified the parties
contacted and expressing interest. It then described three types of sale processes Stillwater
could pursue: a “proprietary process” with a single bidder, a targeted auction involving a
limited number of likely buyers, or a broad auction involving outreach to many potentially
interested parties. JX 217 at ‘603. BAML recommended against the proprietary process
because the absence of competition would minimize Stillwater’s negotiating leverage.
BAML also recommended against a broad auction, given the existence of a “narrow list of
most likely buyers.” Id. This left a targeted auction as the recommended route.
The pitch book described an illustrative timeline for a sale process. BAML
recommended allocating the rest of September 2016 to contact potential buyers. During
October and early November, the Company would enter into confidentiality agreements,
respond to diligence requests, and then receive and evaluate initial indications of interest.
From mid-November through early January 2017, the Company would host site visits,
provide additional diligence, and then solicit and receive final bids. JX 217 at ‘605.
Nothing formal came out of the September 7 meeting. McMullen and Bateman did
not instruct BAML to proceed, nor did they take BAML’s recommendation to the Board.
17
Instead, McMullen and Bateman asked BAML and Vujcic, the investment banker
who had been with Jefferies and was now working on his own, to arrange meetings with
potential suitors at an industry conference during the week of September 20, 2016. BAML
arranged a meeting with Coeur, and McMullen arranged a meeting with Hecla. See JX 220
at ‘609; JX 222; JX 224; PTO ¶ 190–91. Vujcic set up meetings with Kinross Gold
Corporation and Gold Fields Limited, neither of whom had expressed interest. During each
meeting, McMullen conducted what he called a “soft sound” regarding potential interest in
buying the Company. PTO ¶ 192; see id. ¶¶ 193–97.
On the last night of the conference, McMullen had dinner with Froneman.
McMullen told him that he “remain[ed] committed” to a deal with Sibanye and that
“no one else is in the data room,” but cautioned that he was “being flooded by investment
banks” pitching ideas for deals with gold-mining companies. JX 231 at ‘711.
After the conference, BAML sent McMullen “a fairly detailed timeline” for a more
compressed sale process. JX 225 at ‘629. The new timeline contemplated the process
starting during the last week of September and ending during the first week of December.
See id. at ‘632. BAML anticipated site visits taking place during November as part of the
due diligence phase, but McMullen told BAML that the site visits needed to take place
earlier in the process before parties sent their initial indications of interest: “Unless people
get to site, they can’t appreciate the scale of it and will not be putting their best foot forward
in the indicative, non binding offers.” JX 229 at ‘603. BAML revised the timeline, noting
that they were “putting [it] together in a vacuum of info on what’s taken place.” Id. At this
18
point, BAML had not been retained and did not yet know about Sibanye’s bid. They only
knew about their own, independent efforts to solicit interest.
H. The Board Decides Not To Form A Special Committee.
In anticipation of a board meeting on October 3, 2016, Wadman circulated a “list of
potential buyers” to the directors. JX 234. The list identified eighteen companies and the
status of Stillwater’s discussions with each. According to the list, Sibanye had completed
its first phase of diligence and was working with Citigroup to secure financing. Hecla and
Coeur had expressed interest, entered into non-disclosure agreements (“NDAs”), and
scheduled site visits. Northern Star was listed as “interested but very foucssed [sic] on a
gold deal.” Id. at ‘630. Six other companies were described as “[p]otentially interested” or
as having “some interest,” including Anglo American Platinum Limited (“Amplats”). Id.
Six candidates were described as “[u]nlikely” and two as “not interested.” Id. The list
omitted CITIC and Anemka, even though both had expressed interest when BAML called
with its “banker’s idea.”
The list identified a representative who was responsible for interacting with each
company. Evidencing the uncoordinated, unstructured nature of the Company’s process,
the list identified a hodgepodge of names. Vujcic was the contact for eight companies.
BAML was the contact for four companies. Jefferies was the contact for another three.
Macquarie was the contact for one company. An executive at New Chris, the company
where McMullen served as Non-Executive Chairman and President, was listed as the
contact for another company. No one had been formally engaged. Two companies had no
contact listed.
19
During the meeting, McMullen reported on the Company’s outreach to the various
parties. After his presentation, the directors instructed McMullen to obtain formal
proposals from investment banks for a sell-side engagement. The Board also instructed
McMullen to create a cash flow model that could be used to value the Company. See JX
246 at ‘308 to ‘309.
Ever since the July 2016 meeting, Wadman had been concerned that McMullen was
running a sale process to facilitate his exit from the Company. After McMullen rebuffed
him, Wadman had shared his concerns privately with Schweitzer and Merrin. See Wadman
Tr. 664–65; Schweitzer Tr. 157–58, 194. Neither took action.
During the October meeting, Wadman presented his concerns to the full Board and
recommended the formation of a special committee to oversee the sale process. Lucy Stark
of Holland & Hart LLP, the Company’s longstanding outside counsel, disagreed and
advised the Board that she did not believe any conflict existed that warranted the creation
of a special committee. JX 246 at ‘309; see Schweitzer Tr. 159.
The directors other than McMullen then met in executive session. Schweitzer
reported to Wadman that the Board had decided to form a special committee, and Wadman
drafted a set of minutes memorializing the decision. See JX 238 at ‘245; Wadman Dep.
134–35; see also Schweitzer Tr. 205–06. But in the meantime, McMullen learned of the
decision from two other directors. McMullen Tr. 745–47. The final minutes described the
outcome of the executive session as follows:
- No decision was made to pursue or not pursue a potential strategic
transaction at this time. The Board further discussed the potential for a
committee and agreed that, should the need arise, the committee would
20
consist of the entire Board with the exception of the CEO. It also discussed
timing and the potential engagement of an investment banking firm to assist
in the assessment process.
JX 246 at ‘310.
I. McMullen Continues To Focus on Sibyane.
On October 15, 2016, almost two weeks after the Board directed McMullen to solicit
terms from investment bankers, McMullen finally drafted and sent out an email asking
bankers to respond “by no later than COB Wednesday Oct 19 2016.” JX 279 at ‘867. Other
than Macquarie, the record does not reflect what bankers received the email or whom
McMullen solicited, but Macquarie, BMO, BAML, and Jefferies submitted proposals.
On October 17, 2016, Froneman told McMullen that Sibanye’s offer of a “30%
premium to VWAP remained unchanged” and that Sibanye’s board of directors
unanimously supported the transaction. JX 281 at ‘425. McMullen responded that he
remained fully supportive of the deal. He also shared that Stillwater did not yet have a
banker, telling Froneman that he had started reaching out to investment banks on a no-
names basis. Demonstrating his commitment to the deal, McMullen told Froneman that he
would be happy to have Stillwater’s legal advisors start putting together an initial sales
agreement. Id.
The Board met again on October 26 and 27, 2016. After reviewing the proposals
from the investment banks, the Board narrowed the list to BMO and BAML. JX 295 at
‘790. Vujcic, whom McMullen regarded as his “in house banker,” summarized the state of
the Company’s outreach. JX 293 at ‘521. Compare JX 262 at ‘485, with JX 234 at ‘630.
He reported that third parties exhibited a general “[l]ack of knowledge around the
21
significant improvement in operations and general performance,” and he reported that a
number of parties were either focused on other deals, not considering M&A because of
prior bad acquisitions, or not considering PGM companies because of negative associations
with risky jurisdictions like South Africa and Russia. JX 293 at ‘522. For the first time, the
Board authorized management “to engage in discussions with strategic buyers, financial
buyers or any other party interested in consummating a potential strategic transaction with
the [Company].” JX 296 at ‘791.
After the meeting, McMullen scheduled a second site visit for Sibanye and
discussed the “timelines to and post announcement” with Froneman. JX 315 at ‘291 to
‘292; see PTO ¶ 214. Sibanye convinced McMullen that they needed to announce the deal
by mid-December 2016. See JX 281 at ‘425; JX 282 at ‘776; see also PTO ¶ 241.
J. BAML Begins An Abbreviated Pre-Signing Market Check.
On November 7, 2016, the Board formally retained BAML. PTO ¶¶ 216–17; see JX
323 at ‘371. The Board also decided to hire “additional legal counsel with substantial
experience in advising Delaware publicly traded companies in respect of potential strategic
transactions.” JX 323 at ‘372. Four days later, the Board retained Jones Day. PTO ¶ 232.
On November 8, 2016, Bateman sent BAML a package of information that included
Sibanye’s indication of interest from July, the non-disclosure agreements with Hecla and
Coeur, a cash flow model, and instructions for accessing the data room. See JX 325; JX
326; JX 327; JX 328; JX 329. The next day, BAML sent management a slide deck titled
“M&A Process Considerations.” JX 331 at ‘277.
22
BAML understood from management that Sibanye wanted to sign up a deal in
December 2016, so BAML proposed to complete its outreach to a list of parties in just two
days. That timeframe was drastically shorter than the four weeks that BAML had
recommended in September 2016. Anyone who expressed interest would have three weeks
to conduct diligence and submit an indication of interest, just half of the six weeks that
BAML had recommended in September. At that point, the Board would decide whether to
proceed with Sibanye or engage with the other bidders. PTO ¶ 226; see JX 331 at ‘280.
Even though McMullen had previously told BAML that it was critical for potential bidders
to visit the Company’s mines before making an initial indication of interest, BAML’s
compressed timeline did not contemplate that step.
BAML’s presentation identified twenty-eight third parties divided into four
categories:
 “Interested Parties”—Sibanye, Coeur, and Hecla.
 “Possibly Interested Parties”—Gold Fields, Independence Group NL,
Kinross, MMG Limited, Rio Tinto, and South32 Limited.
 “Additional Parties To Contact”—Alamos Gold Inc., Anemka, CITIC,
Fresnillo plc, Goldcorp Inc., IAMGOLD Corporation, Impala Platinum
Holdings Limited, New Gold Inc., Northam Platinum Limited, Pan American
Silver Corporation, X2 Resources, and Yamana Gold Inc.
 “Not Interested”—Northern Star, Amplats, Eldorado Gold Corporation,
Evolution Mining Limited, Newcrest Mining Limited, Newmont Mining
Corporation, and OZ Minerals.
JX 331 at ‘279. Anemka and CITIC were listed as “Additional Parties to Contact,” even
though they had expressed interest during BAML’s earlier independent outreach.
23
OceanaGold Corporation and Boliden AB, whom Vujcic had included in his review of the
Company’s outreach, were omitted from BAML’s list.
BAML’s presentation included scripts for its bankers to use when making their calls.
For “Possibly Interested Parties,” the script stated:
 Announce participants and remind parties of confidentiality;
 BofA Merrill Lynch has been retained by Stillwater Mining Company
to explore strategic alternatives;
 We understand you have had some discussions previously with our
client;
 We would like to further clarify your potential interest in Stillwater as
the process moves forward;
 Do you have any interest to learn more?
 If so, we would suggest you sign an NDA for access to diligence on
the company.
PTO ¶ 225 (formatting added); JX 331 at ‘281. For the “Additional Parties To Contact,”
the script omitted Stillwater’s name and asked generally about interest in the PGM sector.
 Announce participants and remind parties of confidentiality;
 We are calling to gauge your potential interest in a situation in the
PGM sector;
 Our client is a leading player and low cost producer of PGMs and
substantial organic production growth;
 Do you have any interest to learn more?
 If yes, disclose that our client is Stillwater and suggest they sign an
NDA for access to diligence.
24
PTO ¶ 224 (formatting added); JX 331 at ‘281. For Hecla and Coeur, BAML planned to
skip the call and send instructions for submitting an indication of interest by November 23.
PTO ¶ 231; JX 336; JX 337.
Because of the expedited timeline, BAML decided not to contact companies in the
“Not Interested” category, even though many of those companies had said they were not
interested when BAML previously called them with “a banker idea.” The response could
have been different with a formal mandate. BAML’s script for “Additional Parties to
Contact” was not likely to generate interest because it did not say anything more than “a
situation in the PGM sector.” Because almost every other PGM company was located in a
politically unstable jurisdiction, additional parties were less likely to have interest without
a signal that the company involved was Stillwater. And because Stillwater had been
advertising its interest in acquisitions, there was no reason for the additional parties to think
that the situation involved Stillwater. See JX 124 at ‘074.
Using its scripts, BAML contacted five of the six possibly interested parties, missing
Gold Fields. See JX 351. BAML contacted eight of the twelve additional parties, missing
Alamos, Goldcorp, New Gold, and Yamana Gold. See PTO ¶ 230; JX 338; JX 339; JX
340; JX 341; JX 342. BAML contacted Northern Star, even though they were listed as not
interested. See JX 351 at ‘953.
Three of the companies expressed interest: Anemka, Northern Star, and X2. BAML
sent a confidentiality agreement and an invitation to submit a bid by November 29 to
Anemka and Northern Star. BAML sent only a confidentiality agreement to X2, which
quickly retracted its interest. See JX 395 at ‘412; see also JX 359 at ‘413.
25
Sibanye learned about BAML’s market check from Bateman. JX 332 at ‘969.
Sibanye perceived that a compressed timeline was its “only real advantage” in the process.
Id.
K. The Abbreviated Pre-Signing Market Check Continues.
On November 17, 2016, the Board met again, with Jones Day attending for the first
time. BAML and McMullen updated the Board on the outreach and “the Board directed
management to continue the strategic assessment process.”8 Sibanye had already sent a
draft merger agreement to Jones Day.
On November 18, 2016, BAML suggested contacting Norilsk Nickel, a Russian
mining company that had owned a majority stake in the Company between 2003 and 2010.
JX 367. McMullen decided against it. See McMullen Dep. 476.
On November 20, 2016, the CFO of Northern Star informed McMullen that they
were not interested in buying Stillwater but remained interested in a merger of equals.
Northern Star asked McMullen to send a proposal. PTO ¶ 242.
On November 22, 2016, the CEO of Independence informed McMullen that they
were not interested in buying Stillwater but were interested in a merger of equals. PTO ¶
246. Independence asked to sign a confidentiality agreement and perform diligence,
8
JX 364 at ‘374. At trial, Schweitzer testified that this was the meeting at which the
Board finally decided it did not need a special committee. See Schweitzer Tr. 157–58, 194.
The minutes omit any discussion of the matter.
26
explaining that they had trouble reaching BAML. Independence did not receive a
confidentiality agreement until November 25. See JX 403; JX 405.
The Board met again on the afternoon of November 23, 2016. McMullen reported
that he had told Sibanye that its July proposal of $15.75 per share was not sufficient. He
also reported that Sibanye needed the transaction to be “announced by the second week in
December”; otherwise, Sibanye would need to delay the deal until the following year so
that it could obtain stockholder approval to raise the capital needed to fund the Merger. JX
395 at ‘411. McMullen viewed a December signing as “ambitious given that . . . the
Company’s assessment process with other potential parties was ongoing and would need
to be concluded prior to proceeding with a transaction with Sibanye.” Id.
By the time of the board meeting, twenty-four parties had received some type of
formal or informal contact from BAML or Stillwater management. Four parties—Sibanye,
Hela, Coeur, and Anemka—had signed NDAs and accessed the data room. Four parties—
Sibanye, Hela, Coeur, and Northern Star—had conducted site visits. Two parties—Coeur
and Anemka—had notified BAML that they would not proceed further. PTO ¶ 235; JX
393 at ‘868. Two other parties—Northern Star and Independence—had informed Stillwater
that they were only interested in a merger of equals. Hecla had reported that it needed to
find a partner and had asked Stillwater to extend its bid deadline from November 23 to
November 30. PTO ¶ 247; JX 383. The Board extended Hecla’s deadline to November 28.
JX 395 at ‘413. By comparison, the Board had given Sibanye until November 30 to update
its expression of interest from July. See JX 359 at ‘414.
27
After receiving these updates, the Board met in executive session, and the minutes
reflected for the first time that McMullen did not participate. See JX 395 at ‘413. The Board
instructed BAML to evaluate a merger of equals as a potential alternative. Id. When
McMullen learned of the decision, he was skeptical, believing that a merger of equals could
not compete with “a circa $18/share []all cash offer from S[ibanye].” JX 406 at ‘376. He
shared his negative opinion with one of the directors, who replied that a merger of equals
was actionable and needed to be explored as an alternative to Sibanye. See JX 401.
McMullen and BAML worked together to update the presentation that McMullen
had given the Board in January 2016 on a potential merger of equals. See JX 384; JX 396.
McMullen ranked the Company’s options as follows: 1) Sibanye’s acquisition; 2) a merger
of equals with Northern Star; and 3) do nothing or a merger of equals with Independence.
JX 396 at ‘707.
After the board meeting on November 23, 2016, BAML followed up with Hecla to
solicit a specific indication of interest. See JX 394 at ‘214. Hecla did not respond, and the
Company treated Hecla as having dropped out of the process.
On November 29, 2016, Northam asked to be included in the process. JX 414.
BAML sent Northam a confidentiality agreement and invited them to submit a bid by
December 7. PTO ¶ 258; see JX 423; JX 424. That same day, Independence asked for an
extension to the bid deadline since they were still negotiating the confidentiality agreement.
JX 411. McMullen decided that meant that Independence was not interested.
28
L. Sibanye Revises Its Price.
As of November 20, 2016, Sibanye anticipated borrowing $2.5 billion to complete
the Merger. Of this amount, $1.98 billion would be used to pay for the Company’s stock,
with the consideration priced at a 30% premium over the Company’s thirty-day VWAP,
just as McMullen and Froneman had agreed in March. See JX 378 at ‘979, ‘009, ‘016, ‘017.
The additional $500 million would be used to pay off the Company’s debt, fund change-
of-control payments for management, and pay transaction fees.
But on November 30, 2016, Sibanye ran into problems. First, Sibanye realized that
the Company’s stock price had increased to a point where the pricing metric would cause
the total purchase price to exceed Sibanye’s financing. Using the 30% premium over the
thirty-day VWAP, Sibanye would have to pay approximately $18.25 per share, an amount
that would require Sibanye to supplement the transaction financing with cash on hand or
from its revolving credit line. See JX 420 at ‘876.
Second, Sibanye realized that it had calculated the purchase price in its indication
of interest using a twenty-day VWAP rather than a thirty-day VWAP. Id. at ‘874. The
Sibanye team recognized that they had agreed in principle to a thirty-day VWAP, but when
they sent their initial indication of interest, they used a twenty-day VWAP because the
Company’s stock had been in a declining trend, so the shorter period resulted in a lower
price. Id. at ‘873.
Citigroup recommended pretending that Sibanye had never agreed to a pricing
mechanism and had instead offered a fixed price. Id. The Sibanye team went along and
disavowed all of the communications in which they had agreed in principle to a 30%
29
premium over the thirty-day VWAP. See Stewart Dep. 147–48; PTO ¶¶ 243, 245; JX 397
at ‘448; JX 378 at ‘009, ‘016. Going forward, Sibanye would discuss price based on an
indication of interest of $15.75 per share.
M. Stillwater Negotiates With Sibanye.
On December 1, 2016, the deal teams from the Company and Sibanye met in New
York City. Sibanye proposed to acquire the Company for between $17.50 and $17.75 per
share in cash. PTO ¶ 261.
On December 2, 2016, the Board met in New York City. See JX 432; JX 430.
McMullen shared Sibanye’s revised offer. The minutes do not reflect any discussion of
Sibanye’s departure from the prior agreement in principle on a 30% premium over the
thirty-day VWAP or the fact that the agreed-upon pricing metric would have supported a
price around $18.25 per share. Even though BAML had worried about Sibanye using
precisely this tactic, and even though McMullen had assured BAML that Sibanye would
stick to the agreed-upon pricing metric, see JX 343 at ‘740 to ‘741, no one appears to have
mentioned the change to the Board. See JX 432 at ‘414.
During the meeting, BAML presented its preliminary financial analysis of the
Company. Using a discounted cash flow analysis, BAML valued the Company at between
$10.78 and $14.14 per share. Id. at ‘416. That same day, the Company’s stock closed at
$15.17 per share. PTO Ex. A.
BAML also reviewed potential merger of equals transactions with Northern Star
and Independence. JX 432 at ‘417. According to the minutes, the Board decided not to
pursue either transaction because: (i) the lack of synergies; (ii) “the significant disparity in
30
trading multiples”; (iii) “no merger-of-equals or similar transaction appeared to be
available to the Company at this time”; (iv) “neither Northern Star nor Independence
Mining had signed a confidentiality agreement”; and (v) “a substantial delay in the process
to pursue such a possible transaction could result in the loss of a potential transaction with
Sibanye.” JX 432 at ‘417; see McMullen Tr. 769. At the time, Northern Star and
Independence had both proposed a merger-of-equals transaction and both had signed
confidentiality agreements. There was also a meaningful probability that the Sibanye
transaction would slip into the following year.
During the meeting, the Board instructed management to seek a higher price from
Sibanye. That evening, McMullen and Bateman had dinner with Richard Stewart,
Sibanye’s Executive Vice President of Business Development. PTO ¶ 265. After the
dinner, Stewart emailed Froneman that “Mick’s number is 18$+ and that he thinks he can
get his board across the line on that.” JX 434 at ‘426. Froneman, Stewart, and Citigroup
discussed the limits of Sibanye’s financing, which would support a bid up to $18.20 per
share. A 30% premium on the twenty-day VWAP for the Company’s common stock was
$19.20 per share. Id. The group decided to bid $18.00 per share, observing that “if this is
truly not good enough – they will come back but we need to be firm.” JX 434 at ‘425.
On December 3, 2016, Stewart called McMullen and offered $18 per share. PTO ¶
267. BAML had been expecting $19 per share. See JX 438.
On the evening of December 3, 2016, Bateman had “a very open discussion” with
one of Sibanye’s bankers from Citigroup, sharing information about the Board’s internal
31
dynamics, the Company’s lack of other prospects, and his preferences for employment. See
JX 444. The Citigroup banker reported on the conversation as follows:
- 1. Value. Didn’t push back, as knows we’re at our limits. Said Mick
will recommend our proposal to the Board, [that two directors] are “very
commercial”. [Schweitzer] is the one most focused on 30% premium to 20D
VWAP. I reiterated that we’ve truly been talking about 30D VWAP
internally and with [Stillwater], which he seems to understand.
- ...
- 3. MOE. He seemed quite dismissive of the MOE candidate, but said
certain Board members are keen to not shut it down completely (I suspect
more from a litigation perspective).
- 4. Chris’ Plans. Said he honestly hasn’t given a lot of thought to
what’s next, and he’s generally open minded about it. . . . He could be open
to staying with [Sibanye], but depends on the vision and the role. He would
have no desire to be a divisional CFO, but potentially interested in an
Americas Head position. . . .
Id. Bateman participated in this discussion one day after Jones Day had advised the Board
and senior management about the risk of conflicts during the negotiations. In response,
Bateman and other members of management had represented to the Board that they had
not had any discussions with Sibanye about their roles. See JX 432 at ‘418.
On December 4, 2016, Stewart called McMullen and told him that $18.00 was
Sibanye’s best and final offer. PTO ¶ 270. After Bateman’s dinner with the Citigroup
banker, Sibanye knew it did not have to bid higher.
Later that afternoon, McMullen shared the offer with the Board. Fearing that the
timeline might slip into 2017, the directors instructed management “to progress discussions
with Sibanye” and to find out whether Northam remained interested. JX 440 at ‘742.
32
On December 5, 2016, BAML reported that it had not heard anything from
Northam. JX 445. That same day, Froneman called McMullen to reiterate that $18.00 per
share was the best Sibanye could do given their financing constraints. PTO ¶ 272.
N. McMullen Demands His Stock Awards.
On December 7, 2016, McMullen asked Sibanye to “put something into the merger
agreement” about his 2017 stock awards. JX 451. According to McMullen, Sibanye had
previously agreed to the following terms:
- On Closing of the deal, the value of the awards would be converted to
cash based on the metrics of the deal (share price etc) and the amount paid
out as per the normal vesting schedule in cash, namely 1/3 of the RSU value
at each of the end of 2017, 2018 and 2019, and all the PSU value is paid out
at the end of 2019. If any employee leaves for Good Cause (fired or
diminution of job role) then the RSU’s accelerate in accordance with our plan
docs, but the PSU amount is still paid out at the end of 2019.
Id. McMullen told Sibanye that the Compensation Committee had “decided that the 2015
and 2016 PSU’s would vest at 150% for each series in the event of an $18 bid.” Id.
O. The Board Approves The Merger.
On December 8, 2016, the Board met to consider the Merger Agreement and decide
whether to proceed with the Merger. McMullen reported that Northam had withdrawn from
the process. JX 454 at ‘744; see JX 459. By this point, BAML had interacted with fourteen
parties since being formally retained. Five had signed NDAs and conducted diligence. Only
Sibanye had made a bid.
BAML rendered its opinion that Sibanye’s offer of $18 per share was fair. The
consideration of $18 per share represented a 21% premium to the Company’s then-current
stock price, a 21% premium to the 20-day VWAP, and a 25% premium to the 30-day
33
VWAP. JX 453 at ‘260. In its presentation, BAML valued the Company between $10.58
per share and $13.98 per share using a discounted cash flow analysis. Id. at ‘279 to ‘281.
The Merger Agreement contained a no-shop clause with a fiduciary out that
permitted the Company to provide information to and negotiate with a third-party bidder if
the bidder made an “Acquisition Proposal” that constituted or was reasonably likely to lead
to a “Superior Proposal” and the Board concluded that its fiduciary duties required it. See
JX 525 Annex A § 6.2.4. The Board had the right to change its recommendation in favor
of the Merger if a competing bidder made a superior proposal and the Board concluded
that its fiduciary duties required it. The Board did not have the right to terminate the Merger
Agreement to pursue the superior proposal. The Company had to proceed through the
stockholder meeting and only gained the right to terminate if the stockholders voted down
the deal.
If the Company exercised its right to terminate after a negative stockholder vote,
then the Company was obligated to pay Sibanye a termination fee of $16.5 million plus
reimbursement of Sibanye’s expenses up to $10 million, for a total payment of $26.5
million. The total payment represented approximately 1.2% of equity value, with the
termination-fee portion reflecting 0.76% of equity value. The Company had approximately
$110 million more cash than debt, resulting in a slightly smaller enterprise value than
equity value. The total payment represented approximately 1.3% of enterprise value.
The Board adopted the Merger Agreement and resolved to recommend that the
Company’s stockholders approve it. JX 454 at ‘746. On December 9, 2016, Sibanye and
34
the Company announced the Merger. Sibanye’s stock price dropped 18% from $8.20 per
share to $6.96 per share.
The last day of unaffected trading in Stillwater’s common stock was December 8,
2016. On that date, the Company’s shares closed at $14.68, equating to a market
capitalization of approximately $1.8 billion. The deal price represented a 22.6% premium
over the unaffected trading price and a 24.4% premium over the 30-day VWAP. During
the previous two years, Stillwater’s stock price had never traded above $15.58, a level it
reached on August 1, 2016.
P. Vujcic Gets Paid.
After the Merger was signed, McMullen sent Vujcic a retroactive consulting
agreement to compensate him for assisting with the Merger. Vujcic had two comments.
First, he wanted confirmation that he would “not be named in the proxy.” JX 474 at ‘101.
Second, he was disappointed with his compensation, stating:
- I’m a little perplexed as to why you are being so aggressive on the
comp, especially when you are exposed to a potentially large claim from
Jefferies and when I feel I have been pretty fair all along in (a) not locking
you in earlier (trusted your guidance on compensation in July) and (b) in
making every effort leading up to the board meetings in late October to give
you the comfort to reiterate that Sibanye were the only show in town.
Id. at ‘100.
The petitioners argue that Vujcic’s statement that he made “every effort . . . to give
you comfort to reiterate that Sibanye were the only show in town” shows that McMullen
and Vujcic had been trying to eliminate the competition for Sibanye. That is a
conspiratorial reading, rather than a credible reading. Vujcic was attempting to justify
35
receiving greater compensation by pointing to his efforts to solicit other potential bidders.
He showed that Sibanye was “the only show in town” by engaging in outreach and
demonstrating that no one else wanted to bid. The record does not support an inference that
McMullen and Vujcic deceived the Board. See also McMullen Dep. 442–46.
McMullen and Vujcic agreed on a fixed fee of $20,000 per month beginning on
October 24, 2016, plus a discretionary bonus of $100,000. JX 477. Vujcic’s name and
compensation arrangement did not appear in the proxy statement. See JX 525.
Q. Wadman’s Noisy Withdrawal
In February 2017, McMullen and Bateman negotiated the terms of their post-closing
employment with Sibanye. As part of those discussions, Sibanye agreed to treat the Merger
as triggering McMullen and Bateman’s change-of-control payments, without the need for
a second trigger such as termination or a resignation for “Good Reason.” None of the
Company’s other employees received this special treatment. For the other employees, the
Merger was only the first trigger, and no change-in-control benefits would be paid absent
a second trigger.
When McMullen reported on this agreement to the Board during a meeting on
February 23, 2017, Wadman objected. He had been concerned since July 2016 that
McMullen and Bateman had pursued a sale of the Company in their own interest and had
used the deal to advantage themselves. He regarded their special deal on change-in-control
benefits as “clearly self-dealing.” JX 526 at ‘376. The Board did not address Wadman’s
concerns during the meeting.
36
One month later, Wadman resigned. In his resignation letter, Wadman restated his
concerns about how the deal process unfolded. He noted that after the board meeting on
February 23, 2017, McMullen and Bateman “removed [me] from all legal conversations
and decision-making” and “prohibited me from doing my job.” Id. at ‘377 to ‘378. Quoting
his employment agreement, Wadman resigned for “Good Reason” based on a “material
diminution” to his “nature of responsibilities, or authority.” Id.
Over the next several days, the Company’s counsel negotiated a settlement with
Wadman. On March 30, 2017, the Company released a Form 8-K, which stated:
On March 29, 2017, Brent R. Wadman, our Vice President, Legal Affairs &
Corporate Secretary, terminated employment. In connection therewith, we
entered into an agreement with Mr. Wadman with respect to his separation
pursuant to which we will pay him up to approximately $1.49 million. This
amount includes the settlement of Mr. Wadman’s outstanding equity awards,
which will continue to vest in accordance with their terms, including in
connection with the previously announced merger with Sibanye Gold
Limited.
JX 527. The Form 8-K did not mention Wadman’s letter or the reasons for his resignation.
R. Stockholder Approval And Closing
During Stillwater’s annual meeting on April 26, 2017, the stockholders approved
the Merger Agreement. Under Delaware law, a merger requires the approval of holders of
a majority of the outstanding shares, making a non-vote the equivalent of a “no” vote.
Because stockholders can vote no by not voting, the percentage of the outstanding shares
is the appropriate metric for evaluating the level of stockholder support for a merger. The
Company had 121,389,213 shares outstanding. Holders of 91,012,990 shares voted in favor
of the Merger, representing 75% of the issued and outstanding equity. Holders of
37
103,088,167 shares were present at the meeting in person or by proxy, so the same number
of affirmative votes results in a misleadingly higher approval percentage of 88%. See JX
549 at 1.
The Merger closed on May 4, 2017. Between signing and closing, the spot price of
palladium increased by 9.2%. The spot price of a weighted basket of Stillwater’s products
increased by 5.9%.
S. Post-Closing Developments
On July 1, 2017, Sibanye entered into employment agreements with Bateman and
McMullen. Bateman agreed to serve as Executive Vice President—US Region, reporting
directly to Froneman. Bateman waived his change-of-control benefits in return for a higher
base salary and additional incentive compensation. See JX 585.
McMullen agreed to serve as a Technical Advisor to Sibanye. His employment
agreement permitted him “to perform the functions of that role while residing in the Turks
and Caicos.” JX 586 at ‘041. Like Bateman, McMullen waived his change-of-control
benefits in return for an annual salary of $712,000 plus incentive compensation. See id.
In November 2017, Sibanye issued a Competent Person’s Report that valued the
Company’s operating mines at $2.7 billion as of July 31, 2017. This valuation was 23%
greater than the total consideration that Sibanye paid for the Company at closing, just three
months before the valuation date for the report. PTO ¶ 102; JX 615 at 205.
38
T. This Appraisal Proceeding
Holders of 5,804,523 shares of the Company eschewed the consideration offered in
the Merger and pursued appraisal. In August 2018, the holders of 384,000 shares settled
their claims. The remaining petitioners litigated their claims through trial.
II. LEGAL ANALYSIS
“An appraisal proceeding is a limited legislative remedy intended to provide
shareholders dissenting from a merger on grounds of inadequacy of the offering price with
a judicial determination of the intrinsic worth (fair value) of their shareholdings.” Cede &
Co. v. Technicolor, Inc. (Technicolor I), 542 A.2d 1182, 1186 (Del. 1988). Section 262(h)
of the Delaware General Corporation Law states that
the Court shall determine the fair value of the shares exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value, the Court shall
take into account all relevant factors.
8 Del. C. § 262(h). The statute thus places the obligation to determine the fair value of the
shares squarely on the court. Gonsalves v. Straight Arrow Publ’rs, Inc., 701 A.2d 357, 361
(Del. 1997).
Because of the statutory mandate, the allocation of the burden of proof in an
appraisal proceeding differs from a traditional liability proceeding. “In a statutory appraisal
proceeding, both sides have the burden of proving their respective valuation positions . . .
.” M.G. Bancorp., Inc. v. Le Beau, 737 A.2d 513, 520 (Del. 1999). “No presumption,
favorable or unfavorable, attaches to either side’s valuation . . . .” Pinson v. Campbell-
Taggart, Inc., 1989 WL 17438, at *6 (Del. Ch. Feb. 28, 1989). “Each party also bears the
39
burden of proving the constituent elements of its valuation position . . . , including the
propriety of a particular method, modification, discount, or premium.” Jesse A. Finkelstein
& John D. Hendershot, Appraisal Rights in Mergers and Consolidations, Corp. Prac. Series
(BNA) No. 38-5th, at A-90 (2010 & 2017 Supp.) [hereinafter Appraisal Rights].
As in other civil cases, the standard of proof in an appraisal proceeding is a
preponderance of the evidence. M.G. Bancorp., 737 A.2d at 520. A party is not required to
prove its valuation conclusion, the related valuation inputs, or its underlying factual
contentions by clear and convincing evidence or to exacting certainty. See Triton Constr.
Co. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *6 (Del. Ch. May 18, 2009), aff’d,
2010 WL 376924 (Del. Jan. 14, 2010) (ORDER). “Proof by a preponderance of the
evidence means proof that something is more likely than not. It means that certain
evidence, when compared to the evidence opposed to it, has the more convincing force and
makes you believe that something is more likely true than not.” Agilent Techs., Inc. v.
Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18, 2010) (internal quotation marks
omitted).
“In discharging its statutory mandate, the Court of Chancery has discretion to select
one of the parties’ valuation models as its general framework or to fashion its own.” M.G.
Bancorp., 737 A.2d at 525–26. “[I]t is entirely proper for the Court of Chancery to adopt
any one expert’s model, methodology, and mathematical calculations, in toto, if that
valuation is supported by credible evidence and withstands a critical judicial analysis on
the record.” Id. at 526. Or the court “may evaluate the valuation opinions submitted by the
parties, select the most representative analysis, and then make appropriate adjustments to
40
the resulting valuation.” Appraisal Rights, supra, at A-31 (collecting cases). The court may
also “make its own independent valuation calculation by . . . adapting or blending the
factual assumptions of the parties’ experts.” M.G. Bancorp., 737 A.2d at 524. “If neither
party satisfies its burden, however, the court must then use its own independent judgment
to determine fair value.” Gholl v. eMachines, Inc., 2004 WL 2847865, at *5 (Del. Ch. Nov.
24, 2004). But the court must also be cautious when adopting an approach that deviates
from the parties’ positions. Doing so “late in the proceedings” may “inject[] due process
and fairness problems” that are “antithetical to the traditional hallmarks of a Court of
Chancery appraisal proceeding,” because the court’s approach will not have been
“subjected to the crucible of pretrial discovery, expert depositions, cross-expert rebuttal,
expert testimony at trial, and cross examination at trial.” Verition P’rs Master Fund Ltd. v.
Aruba Networks, Inc., 210 A.3d 128, 140-41 (Del. 2019).
In Tri-Continental Corporation v. Battye, 74 A.2d 71 (Del. 1950), the Delaware
Supreme Court explained in detail the concept of value that the appraisal statute employs:
The basic concept of value under the appraisal statute is that the stockholder
is entitled to be paid for that which has been taken from him, viz., his
proportionate interest in a going concern. By value of the stockholder’s
proportionate interest in the corporate enterprise is meant the true or intrinsic
value of his stock which has been taken by the merger. In determining what
figure represents the true or intrinsic value, . . . the courts must take into
consideration all factors and elements which reasonably might enter into the
fixing of value. Thus, market value, asset value, dividends, earning
prospects, the nature of the enterprise and any other facts which were known
or which could be ascertained as of the date of the merger and which throw
any light on future prospects of the merged corporation are not only pertinent
41
to an inquiry as to the value of the dissenting stockholder’s interest, but must
be considered . . . .9
Subsequent Delaware Supreme Court decisions have adhered consistently to this definition
of value.10 Most recently, the Delaware Supreme Court reiterated that “[f]air value is . . .
the value of the company to the stockholder as a going concern,” i.e., the stockholder’s
“proportionate interest in a going concern.” Aruba, 210 A.3d at 132–33.
The trial court’s “ultimate goal in an appraisal proceeding is to determine the ‘fair
or intrinsic value’ of each share on the closing date of the merger.” Dell, Inc. v. Magnetar
Global Event Driven Master Fund Ltd., 177 A.3d 1, 20 (Del. 2017) (quoting Cavalier Oil,
564 A.2d at 1142–43). To accomplish this task, “the court should first envisage the entire
pre-merger company as a ‘going concern,’ as a standalone entity, and assess its value as
such.” Id. (quoting Cavalier Oil, 564 A.2d at 1144). When doing so, the corporation “must
9
Id. at 72. Although Battye is the seminal Delaware Supreme Court case on point,
Chancellor Josiah Wolcott initially established the meaning of “value” under the appraisal
statute in Chicago Corporation v. Munds, 172 A. 452 (Del. Ch. 1934). Citing the “material
variance” between the Delaware appraisal statute, which used “value,” and the comparable
New Jersey statute that served as a model for the Delaware statute, which used “full market
value,” Chancellor Wolcott held that the plain language of the statute required “value” to
be determined on a “going concern” basis. Id. at 453–55. But see Union Ill. 1995 Inv. Ltd.
P’ship v. Union Fin. Gp., Ltd., 847 A.2d 340, 355–56 (Del. Ch. 2004) (“This requirement
that the valuation inquiry focus on valuing the entity as a going concern has sometimes
been confused as a requirement of § 262’s literal terms. It is not.”).
10
See, e.g., Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 222 (Del.
2005); Paskill Corp. v. Alcoma Corp., 747 A.2d 549, 553 (Del. 2000); Rapid-Am. Corp. v.
Harris, 603 A.2d 796, 802 (Del. 1992); Cavalier Oil Corp. v. Harnett, 564 A.2d 1137,
1144 (Del. 1989); Bell v. Kirby Lumber Corp., 413 A.2d 137, 141 (Del. 1980); Universal
City Studios, Inc. v. Francis I. duPont & Co., 334 A.2d 216, 218 (Del. 1975).
42
be valued as a going concern based upon the ‘operative reality’ of the company as of the
time of the merger,” taking into account its particular market position in light of future
prospects. M.G. Bancorp., 737 A.2d at 525 (quoting Cede & Co. v. Technicolor, Inc.
(Technicolor IV), 684 A.2d 289, 298 (Del. 1996)); accord Dell, 177 A.3d at 20. The
concept of the corporation’s “operative reality” is important because “[t]he underlying
assumption in an appraisal valuation is that the dissenting shareholders would be willing
to maintain their investment position had the merger not occurred.” Technicolor IV, 684
A.2d at 298. Consequently, the trial court must assess “the value of the company . . . as a
going concern, rather than its value to a third party as an acquisition.” M.P.M. Enters., Inc.
v. Gilbert, 731 A.2d 790, 795 (Del. 1999).
“The time for determining the value of a dissenter’s shares is the point just before
the merger transaction ‘on the date of the merger.’” Appraisal Rights, supra, at A-33
(quoting Technicolor I, 542 A.2d at 1187). Put differently, the valuation date is the date on
which the merger closes. Technicolor IV, 684 A.2d at 298; accord M.G. Bancorp., 737
A.2d at 525. If the value of the corporation changes between the signing of the merger
agreement and the closing, then the fair value determination must be measured by the
“operative reality” of the corporation at the effective time of the merger. See Technicolor
IV, 684 A.2d at 298.
The statutory obligation to make a single determination of a corporation’s value
introduces an impression of false precision into appraisal jurisprudence.
[I]t is one of the conceits of our law that we purport to declare something as
elusive as the fair value of an entity on a given date . . . . [V]aluation decisions
are impossible to make with anything approaching complete confidence.
43
Valuing an entity is a difficult intellectual exercise, especially when business
and financial experts are able to organize data in support of wildly divergent
valuations for the same entity. For a judge who is not an expert in corporate
finance, one can do little more than try to detect gross distortions in the
experts’ opinions. This effort should, therefore, not be understood, as a
matter of intellectual honesty, as resulting in the fair value of a corporation
on a given date. The value of a corporation is not a point on a line, but a range
of reasonable values, and the judge’s task is to assign one particular value
within this range as the most reasonable value in light of all the relevant
evidence and based on considerations of fairness.11
As the Delaware Supreme Court recently explained, “fair value is just that, ‘fair.’ It does
not mean the highest possible price that a company might have sold for had Warren Buffet
negotiated for it on his best day and the Lenape who sold Manhattan on their worst.” DFC
Glob. Corp. v. Muirfield Value P’rs, 172 A.3d 346, 370 (Del. 2017).
Because the determination of fair value follows a litigated proceeding, the issues
that the court considers and the outcome it reaches depend in large part on the arguments
advanced and the evidence presented.
An argument may carry the day in a particular case if counsel advance it
skillfully and present persuasive evidence to support it. The same argument
may not prevail in another case if the proponents fail to generate a similarly
persuasive level of probative evidence or if the opponents respond
effectively.
11
Cede & Co. v. Technicolor, Inc., 2003 WL 23700218, at *2 (Del. Ch. Dec. 31,
2003, revised July 9, 2004), aff’d in part, rev’d in part on other grounds, 884 A.2d 26 (Del.
2005); accord Finkelstein v. Liberty Dig., Inc., 2005 WL 1074364, at *12 (Del. Ch. Apr.
25, 2005) (“The judges of this court are unremittingly mindful of the fact that a judicially
selected determination of fair value is just that, a law-trained judge’s estimate that bears
little resemblance to a scientific measurement of a physical reality. Cloaking such estimates
in grand terms like ‘intrinsic value’ does not obscure this hard truth from any informed
commentator.”).
44
Merion Capital L.P. v. Lender Processing Servs., L.P., 2016 WL 7324170, at *16 (Del.
Ch. Dec. 16, 2016). Likewise, the approach that an expert espouses may have met “the
approval of this court on prior occasions,” but may be rejected in a later case if not
presented persuasively or if “the relevant professional community has mined additional
data and pondered the reliability of past practice and come, by a healthy weight of reasoned
opinion, to believe that a different practice should become the norm . . . .” Glob. GT LP v.
Golden Telecom, Inc. (Golden Telecom Trial), 993 A.2d 497, 517 (Del. Ch.), aff’d, 11 A.3d
214 (Del. 2010).
A. The Deal Price
Sibanye contends that the deal price of $18.00 per share is a persuasive indicator of
fair value if adjusted downward to eliminate elements of value arising from the Merger.
The petitioners argue that the deal price should receive no weight. As the proponent of
using the deal price, Sibanye bore the burden of establishing its persuasiveness. Sibanye
also bore the burden of proving its downward adjustment.
1. The Standard For Evaluating A Sale Process
There is no presumption that the deal price reflects fair value. Dell, 177 A.3d at 21;
DFC, 172 A.3d at 366–67. Relying on the statutory requirement that the Court of Chancery
must consider “all relevant factors” when determining fair value, the Delaware Supreme
Court has rejected “requests for the adoption of a presumption that the deal price reflects
fair value if certain preconditions are met, such as when the merger is the product of arm’s-
length negotiation and a robust, non-conflicted market check, and where bidders had full
45
information and few, if any, barriers to bid for the deal.” Dell, 177 A.3d at 21. Yet the
Delaware Supreme Court has also cautioned that its
refusal to craft a statutory presumption in favor of the deal price when certain
conditions pertain does not in any way signal our ignorance to the economic
reality that the sale value resulting from a robust market check will often be
the most reliable evidence of fair value, and that second-guessing the value
arrived upon by the collective views of many sophisticated parties with a real
stake in the matter is hazardous.
DFC, 172 A.3d at 366. The Delaware Supreme Court has likewise cautioned that “we have
little quibble with the economic argument that the price of a merger that results from a
robust market check, against the back drop of a rich information base and a welcoming
environment for potential buyers, is probative of the company’s fair value.” Id. Based on
the facts presented in DFC and Dell, the Delaware Supreme Court endorsed using the deal
price as a persuasive indicator of fair value in those cases. Based on the facts presented in
Aruba, the Delaware Supreme Court used a deal-price-less-synergies metric to make its
own fair value determination.
As a general matter, the persuasiveness of the deal price depends on the reliability
of the sale process that generated it. When assessing whether a sale process results in fair
value, the issue “is not whether a negotiator has extracted the highest possible bid.” Dell,
177 A.3d at 33. “[T]the purpose of an appraisal is . . . to make sure that [the petitioners]
receive fair compensation for their shares in the sense that it reflects what they deserve to
receive based on what would fairly be given to them in an arm’s-length transaction.” DFC,
172 A.3d at 370–71. “[T]he key inquiry is whether the dissenters got fair value and were
not exploited.” Dell, 177 A.3d at 33.
46
Relying on the Delaware Supreme Court’s decision in DFC, the petitioners assert
that the deal price “deserves weight only if the merger is the product of a ‘robust market
search’ and an arm’s-length third party transaction with ‘no hint of self-interest that
compromised the market check.’” Dkt. 210 at 36 [hereinafter PTOB] (quoting DFC, 172
A.3d at 349). That is not what DFC held.
The petitioners have accurately quoted phrases from the decision in DFC, but when
the Delaware Supreme Court made those observations, it was describing the trial court’s
findings regarding the sale process that took place in that case. The Delaware Supreme
Court then determined that given those attributes, “the best evidence of fair value was the
deal price.” DFC, 172 A.3d at 349. The high court’s comments in DFC explained why the
particular sale process in that case was so good as to make the deal price “the best evidence
of fair value.” The decision did not identify minimum characteristics that a sale process
must have before a trial court can give it weight. The decision also did not address what
makes a sale process sufficiently bad that a trial court cannot give it weight. Technically,
the decision did not even delineate when a sale process would be sufficiently good that a
trial court should regard it as “the best evidence of fair value.” The Delaware Supreme
Court could have believed the sale process in DFC warranted that level of consideration
without excluding the possibility that a not-as-good sale process could warrant the same
treatment.
The same is true for the Delaware Supreme Court’s comments about the sale process
in Dell. There, the Delaware Supreme Court described the sale process as having featured
“fair play, low barriers to entry, outreach to all logical buyers, and the chance for any
47
topping bidder to have the support of Mr. Dell’s own votes . . . .” Dell, 177 A.3d at 35.
Based on its view of the sale process, the Delaware Supreme Court suggested that “the deal
price deserved heavy, if not dispositive weight.” Dell, 177 A.3d at 23. After describing the
sale process in greater detail, the Delaware Supreme Court observed, “Overall, the weight
of evidence shows that Dell’s deal price has heavy, if not overriding, probative value.” Id.
at 30. As in DFC, the Delaware Supreme Court was explaining why it regarded a particular
sale process as so good that it deserved “heavy, if not dispositive weight.” The Delaware
Supreme Court was not identifying the minimum requirements for a sale process to
generate reliable information about fair value, nor was it enumerating qualities which, if
absent, would render the outcome of a sale process so unreliable as to provide no insight
into fair value.
The Delaware Supreme Court’s decision in Aruba likewise did not address the
minimum requirements for a sale process to generate reliable information about fair value.
There, the trial court found the sale process to be sufficiently reliable to use the deal price
as a valuation indicator, but declined to give it weight. The Delaware Supreme Court
accepted that the sale process was sufficiently reliable and used the deal price as the
exclusive basis for its own fair value determination. As with Dell and DFC, the Aruba
decision did not have to address when a sale process was sufficiently bad that a trial court
should decline to rely on the deal price.
The decisions in DFC, Dell, and Aruba are highly informative because they analyze
fact patterns in which the Delaware Supreme Court viewed the sale processes as
sufficiently reliable to use the deal price as either (i) the exclusive basis for its own fair
48
value determination (Aruba), (ii) as a valuation indicator that “deserved heavy, if not
dispositive weight” (Dell), or (iii) as a valuation indicator that provided “the best evidence
of fair value” (DFC). But Aruba, Dell, and DFC do not establish legal requirements for a
sale process. Whether a sale process is sufficiently good that the deal price should be
regarded as persuasive evidence of fair value, or whether a sale process is sufficiently bad
that the deal price should not be regarded as persuasive evidence of fair value are invariably
fact-specific questions, and the answers depend on the arguments made and the evidence
presented in a given case.
2. Objective Indicia Of Reliability
In the recent appraisal decisions that have examined the reliability of a sale process,
the Delaware Supreme Court has cited certain “objective indicia” that “suggest[] that the
deal price was a fair price.” Dell, 177 A.3d at 28; accord DFC, 172 A.3d at 376. The
presence of objective indicia do not establish a presumption in favor of the deal price. The
indicia are a starting point for analysis, not the end point, and in each of its recent appraisal
decisions, the Delaware Supreme Court has determined that a combination of the objective
indicia and other evidence outweighed the shortcomings in the sale processes that the
petitioners had identified (Aruba) or which the trial court had regarded as undermining the
persuasiveness of the deal price (Dell and DFC).
First, the Merger was an arm’s-length transaction with a third party. See DFC, 172
A.3d at 349 (citing fact that “the company was purchased by a third party in an arm’s length
sale” as factor supporting fairness of deal price). It was not a transaction involving a
controlling stockholder. See Dell, 177 A.3d at 30 (citing fact that “this was not a buyout
49
led by a controlling stockholder” as a factor supporting fairness of deal price). Sibanye was
an unaffiliated acquirer with no prior ownership interest in Stillwater.
Second, the Board did not labor under any conflicts of interest. Six of the Board’s
seven members were disinterested, outside directors, and they had the statutory authority
under the Delaware General Corporation Law to say “no” to any merger. See 8 Del. C. §
251(b) (requiring board adoption and recommendation of a merger agreement); Dell, 177
A.3d at 28 (citing fact that special committee was “composed of independent, experienced
directors and armed with the power to say ‘no’” as factor supporting fairness of deal price).
Stillwater’s stockholders were widely dispersed, and the petitioners have not identified
divergent interests among them. Cf. id. at 11 (citing the fact that “any outside bidder who
persuaded stockholders that its bid was better would have access to Mr. Dell’s votes” as a
factor supporting fairness of deal price).
Third, Sibanye conducted due diligence and received confidential information about
Stillwater’s value. See Aruba, 210 A.3d at 137 (emphasizing that buyer armed with
“material nonpublic information about the seller is in a strong position (and is uniquely
incentivized) to properly value the seller”). Like the acquirer in Aruba, Sibanye “had signed
a confidentiality agreement, done exclusive due diligence, gotten access to material
nonpublic information,” and had a “sharp[] incentive to engage in price discovery . . .
because it was seeking to acquire all shares.” Id. at 140.
Fourth, Stillwater negotiated with Sibanye and extracted multiple price increases.
See id. at 139 (citing “back and forth over price”); Dell, 177 A.3d at 28 (citing fact that
special committee “persuaded Silver Lake to raise its bid six times”). In July 2016, when
50
Sibanye indicated interest in a transaction at $15.75 per share, Stillwater did not rush into
a deal. In December 2016, when Sibanye raised its indication of interest to a range of
$17.50 to $17.75 per share, Stillwater again did not proceed. With the Board’s backing,
McMullen demanded a higher price. When Sibanye offered $18.00 per share, the Board
did not immediately accept. Only after Sibanye twice stated that $18.00 per share was its
best and final offer did the Board accept that price.
Most importantly, no bidders emerged during the post-signing phase, which is a
factor that the Delaware Supreme Court has stressed when evaluating a sale process.12 The
Merger Agreement did not contain any exceptional deal protection features, and the total
amounts due via the termination fee and expense reimbursement provision were
comparatively low, representing approximately 1.2% of equity value. Excluding the
expense reimbursement, the termination fee reflected only 0.76% of equity value. The
absence of a topping bid was thus highly significant.
As noted, these are fewer objective indicia of fairness than the Delaware Supreme
Court identified when reviewing the sale processes in DFC, Dell, or Aruba, and the
presence of these factors does not establish a presumption in favor of the deal price.
12
See Aruba, 210 A.3d at 136 (“It cannot be that an open chance for buyers to bid
signals a market failure simply because buyers do not believe the asset on sale is
sufficiently valuable for them to engage in a bidding contest against each other.”); Dell,
177 A.3d at 29 (“Fair value entails at a minimum a price some buyer is willing to pay—
not a price at which no class of buyers in the market would pay.”); id. at 33 (finding that
absence of higher bid meant “that the deal market was already robust and that a topping
bid involved a serious risk of overpayment,” which “suggests the price is already at a level
that is fair”).
51
Nevertheless, the objective indicia that were present provide a cogent foundation for
relying on the deal price as a persuasive indicator of fair value, subject to further review of
the evidence.
3. The Challenges To The Pre-Signing Phase
The petitioners have advanced a multitude of reasons why they believe the deal price
for Stillwater does not provide a persuasive indicator of fair value. The bulk of their
objections concern the pre-signing phase.
As a threshold matter, the petitioners argue generally that a reliable sale process
requires some degree of pre-signing outreach, citing a comment from the Union Illinois
decision in which this court used a deal-price-less-synergies metric to value a privately
held company after concluding that the company was “marketed in an effective manner.”
Union Ill., 847 A.2d at 350. The petitioners also cite a statement from the AOL decision to
the effect that a sale process will provide persuasive evidence of statutory fair value when
“(i) information was sufficiently disseminated to potential bidders, so that (ii) an informed
sale could take place, (iii) without undue impediments imposed by the deal structure itself.”
In re Appraisal of AOL Inc., 2018 WL 1037450, *8 (Del. Ch. Feb. 23, 2018). Neither
decision established a rule that pre-signing outreach is invariably required before the deal
price can serve as persuasive evidence of fair value. At least for a widely held, publicly
traded company, a sale process could justify both sets of observations through the public
announcement of a transaction and a sufficiently open post-signing market check.
The petitioners’ myriad arguments about the pre-signing process in this case raise a
fundamental question: Would the deal price provide persuasive evidence of fair value if
52
Stillwater had pursued a single-bidder strategy in which it only interacted with Sibanye
before signing the Merger Agreement, recognizing that the Merger Agreement was
sufficiently open to permit a meaningful post-signing market check? If the deal price would
have provided persuasive evidence of fair value under those circumstances, then the
additional efforts that Stillwater made before signing, even if disorganized and flawed,
should not change the outcome. It is conceivable that a pre-signing process could involve
features that undermined the effectiveness of a post-signing market check, such as never-
waived standstill agreements containing don’t-ask-don’t-waive provisions, but that was not
the case here. At least on the facts presented, Stillwater’s efforts were additive, not
subtractive. They might not have added much, but they did not detract from what Stillwater
could have achieved through a single-bidder process focused on Sibanye followed by a
post-signing market check.
a. The Possibility Of A Single-Bidder Strategy
Although the Delaware Supreme Court has not had the opportunity to consider a
single-bidder strategy for purposes of determining the persuasiveness of a deal-price metric
in an appraisal proceeding, extant precedent suggests that if Stillwater had pursued a single-
bidder strategy in which it only interacted with Sibanye before signing the Merger
Agreement, then the deal price would provide persuasive evidence of fair value because
the Merger Agreement was sufficiently open to permit a meaningful post-signing market
check. The reasoning that leads to this endpoint starts not with the recent triumvirate of
appraisal cases, but rather with an important Delaware Supreme Court decision that
restated the high court’s enhanced scrutiny jurisprudence for purposes of applying that
53
standard of review in a breach of fiduciary duty case. C & J Energy Servs., Inc. v. City of
Miami Gen. Empls.’ & Sanitation Empls.’ Ret. Tr., 107 A.3d 1049 (Del. 2014). The
Delaware Supreme Court’s enhanced scrutiny jurisprudence becomes pertinent to appraisal
proceedings because, as commentators have perceived, the deal price will provide
persuasive evidence of fair value in an appraisal proceeding involving a publicly traded
firm if the sale process would satisfy enhanced scrutiny in a breach of fiduciary duty case.13
In C & J Energy, the Delaware Supreme Court held that plaintiffs who challenged
a transaction involving only a passive, post-signing market check had not shown a
reasonable likelihood that the director defendants had breached their fiduciary duties under
the enhanced scrutiny standard of review. The transaction in C & J Energy was a stock-
for-stock merger between C & J Energy Services, Inc. and a subsidiary of Nabors Industries
Ltd. Although C & J Energy was nominally the acquirer, it would emerge from the
transaction with a controlling stockholder, and the Delaware Supreme Court therefore
13
See Lawrence A. Hamermesh & Michael L. Wachter, Finding the Right Balance
in Appraisal Litigation: Deal Price, Deal Process, and Synergies, 73 Bus. Law. 961, 962
(2018) (commending outcomes in Dell and DFC and arguing that “the Delaware courts’
treatment of the use of the deal price to determine fair value does and should mirror the
treatment of shareholder class action fiduciary duty litigation”); id. at 982–83 (citing Dell
and DFC in observing, “What we discern from the case law, however, is a tendency to rely
on deal price to measure fair value where the transaction would survive enhanced judicial
scrutiny . . . . Thus, in order to determine whether to use the deal price to establish fair
value, the Delaware courts are engaging in the same sort of scrutiny they would have
applied under Revlon if the case were one challenging the merger as in breach of the
directors’ fiduciary duties.” (footnote omitted)); Charles Korsmo & Minor Myers, The
Flawed Corporate Finance of Dell and DFC Global, 68 Emory L.J. 221, 269 (2018)
(explaining that Dell and DFC “conflate questions of fiduciary duty liability with the
valuation questions central to appraisal disputes”).
54
examined whether the directors had fulfilled their situationally specific duty to seek the
best transaction reasonably available. See C & J Energy, 107 A.3d at 1067.
The merger in C & J Energy resulted from a CEO-driven process. Joshua Comstock,
the founder, chairman, and CEO of C & J Energy, spearheaded the discussions. Talks
between Comstock and the CEO of Nabors started in January 2014, and although
Comstock discussed the deal with some of C & J Energy’s directors, he did not receive
formal board approval to negotiate until April. Later in the process, he made a revised offer
to Nabors without board approval. The plaintiffs argued that Comstock acted without
authority and misled the board about key issues. The Delaware Supreme Court found “at
least some support for the plaintiffs’ contention that Comstock at times proceeded on an
‘ask for forgiveness rather than permission’ basis.” Id. at 1059.
There was evidence in C & J Energy that Comstock had personal reasons to favor a
deal with Nabors. The Nabors CEO “assured Comstock throughout the process that he
would be aggressive in protecting Comstock’s financial interests if a deal was
consummated.” Id. at 1064. After the key terms of the transaction had been negotiated, but
before it was formally approved, Comstock asked for a side letter “affirming that C & J’s
management would run the surviving entity and endorsing a generous compensation
package.” Id. When the Nabors CEO balked, Comstock threatened to not sign or announce
the deal. The Nabors CEO gave in, and the deal was announced as planned. Id. at 1064–
65. In addition, there was evidence that C & J Energy’s primary financial advisor was less
than optimally effective and seemed to be advocating for the deal rather than advocating
for C & J Energy. See id. at 1056. The banker also had divergent interests because of its
55
role as a financing source for the deal. Id. at 1057. There were thus reasons to think that
the two principal negotiators for C & J—its CEO and its banker—had personal reasons to
favor a transaction with Nabors and to push for that outcome.
The merger agreement in C & J Energy included a no-shop clause subject to a
fiduciary out and a termination fee equal to 2.27% of the deal value. Id. at 1063. The period
between the announcement of the deal on June 25, 2014, and the trial court’s issuance of
the injunction on November 25, 2014, lasted 153 days. No competing bidder emerged
during that period.
On these facts, the Delaware Supreme Court found no grounds for a potential breach
of duty, explaining that “[w]hen a board exercises its judgment in good faith, tests the
transaction through a viable passive market check, and gives its stockholders a fully
informed, uncoerced opportunity to vote to accept the deal, we cannot conclude that the
board likely violated its Revlon duties.” Id. at 1053. Elaborating, the senior tribunal
explained that a board may pursue a single transaction partner, “so long as the transaction
is subject to an effective market check under circumstances in which any bidder interested
in paying more has a reasonable opportunity to do so.” Id. at 1067. The high court
emphasized that “[s]uch a market check does not have to involve an active solicitation, so
long as interested bidders have a fair opportunity to present a higher-value alternative, and
the board has the flexibility to eschew the original transaction and accept the higher-value
deal.” Id. at 1067–68. The transaction in C & J Energy satisfied this test. Describing the
suite of deal protections, the Delaware Supreme Court observed that “a potential competing
bidder faced only modest deal protection barriers.” Id. at 1052. Later, the court reiterated
56
that “there were no material barriers that would have prevented a rival bidder from making
a superior offer.” Id. at 1070; accord id. (“But in this case, there was no barrier to the
emergence of another bidder and more than adequate time for such a bidder to emerge.”).
The Delaware Supreme Court also cited with approval precedents in which a sell-side
board had engaged exclusively with a single buyer, had not conducted a pre-signing market
check, then agreed to a merger agreement containing a no-shop clause, a matching right,
and a termination fee, and the resulting combination was found sufficient to permit an
effective post-signing market check that satisfied the directors’ duties under enhanced
scrutiny.14
Procedurally, the Delaware Supreme Court’s decision in C & J Energy vacated an
injunction that the trial court had entered in advance of the stockholder vote. In holding
that the trial court had issued the injunction improvidently, the high court noted that “[t]he
ability of the stockholders themselves to freely accept or reject the board’s preferred course
of action is also of great importance in this context.” Id. at 1068. The role of the vote,
however, should not detract from the high court’s observations about the adequacy of the
14
See id. at 1068 n.87 (citing cases including In re Dollar Thrifty S’holders Litig.,
14 A.3d 573, 612–13, 615 (Del. Ch. 2010) (finding that the target board’s use of no-shop,
matching rights, and termination fee provisions were reasonable even though the company
had agreed to deal exclusively with the buyer without conducting a pre-signing market
check); and In re MONY Gp. Inc. S’holders Litig., 852 A.2d 9 (Del. Ch. 2004) (finding that
the board acted reasonably even though it did not actively shop the company because the
board was financially sophisticated, had knowledge of the relevant industry, and there was
a “substantial opportunity for an effective market check” after the agreement was
announced)); id. at 1069 (citing Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del.
2009)).
57
single-bidder process. Underscoring that point, the Delaware Supreme Court cited the trial
court’s apparent belief “that Revlon required C & J’s board to conduct a pre-signing active
solicitation process in order to satisfy its contextual fiduciary duties,” then explicitly
rejected that understanding of the enhanced scrutiny standard. Id. at 1068. As a result, the
Delaware Supreme Court’s decision in C & J Energy has implications that go beyond the
injunction context.
One area where its implications subsequently became manifest was in a post-closing
liability action where plaintiffs sought to recover from an alleged aider-and-abettor under
a quasi-appraisal theory of damages. See In re PLX Tech. Inc. S’holders Litig., --- A.3d --
-, 2019 WL 2144476 (Del. May 16, 2019) (TABLE). The PLX litigation challenged a
merger agreement in which the acquirer (Avago) purchased the target (PLX) for cash. As
in C & J Energy, the sale process was not pristine. The trial court found that a key director
and the company’s investment banker had divergent interests that caused them to favor a
sale over having PLX remain independent, that Avago tipped the director and the banker
about the timing and pricing of a deal, that the director and the banker failed to disclose the
tip to the board while using the information to help them position PLX to be sold, and that
the proxy statement failed to disclose these issues. See In re PLX Tech. Inc. S’holders Litig.
(PLX Trial), 2018 WL 5018535, at *32–35, *44–47 (Del. Ch. Oct. 16, 2018) (subsequent
history omitted). Based on these findings, the trial court found a predicate breach of
fiduciary duty under the enhanced scrutiny standard. The trial court also found that the sole
remaining defendant—an activist stockholder affiliated with the key director—had
participated knowingly in the breach. See id. at *48–50.
58
The plaintiffs’ claim foundered, however, at the damages stage. The plaintiffs
sought to recover compensatory damages on behalf of a class of stockholders based on the
theory that PLX should have remained independent rather than being sold. Under this
theory, the plaintiffs sought “out-of-pocket (i.e., compensatory) money damages equal to
the ‘fair’ or ‘intrinsic’ value of their stock at the time of the merger, less the price per share
that they actually received,” with “[t]he ‘fair’ or ‘intrinsic’ value of the shares . . .
determined using the same methodologies employed in an appraisal.” Id. at *50 (internal
quotation marks omitted) (collecting cases). The plaintiffs’ expert used a DCF
methodology to value PLX at $9.86 per share, well above the deal price of $6.50 per share.
See id. at *51.
Although PLX’s pre-signing process was marred by breaches of fiduciary duty
resulting from Avago’s tip to the key director and the company’s banker, the trial court
found that the sale process as a whole was sufficiently reliable to warrant rejecting the
plaintiffs’ valuation. The trial court explained that “[m]ore important than the pre-signing
process was the post-signing market check.” Id. at *55. After discussing the outcome in C
& J Energy, the trial court reasoned that “the structure of the Merger Agreement satisfied
the Delaware Supreme Court’s standard for a passive, post-signing market check.” Id. The
merger agreement (i) contained a no-shop with a fiduciary subject an unlimited match right
that gave Avago four days to match the first superior proposal and two days to match any
subsequent increase, and (ii) required PLX to pay Avago a termination fee of $10.85
million, representing 3.5% of equity value ($309 million) and 3.7% of enterprise value
($293 million). See id. at *26, *44. Avago launched its first step-tender offer on July 8,
59
2014. No competing bidder intervened, and the merger closed thirty-five days later on
August 12. Id. at *27. This time period compared favorably with other passive, post-signing
market checks that Delaware decisions had approved.15
On appeal, the Delaware Supreme Court affirmed the judgment based solely on the
trial court’s damages ruling and without reaching or expressing a view on any of the other
issues raised by the case. See PLX, 2019 WL 2144476, at *1. For present purposes, the
damages issue is the important one, because the trial court had determined that the suite of
defensive measures in the merger agreement, together with the absence of a topping bid,
provided a more reliable indication of value than the plaintiffs’ discounted cash flow
model. See PLX Trial, 2018 WL 5018535, at *44, *54–56. Notably for present purposes,
although the burden of proof rested solely with the plaintiffs, the trial court in PLX made
its determination using the same valuation standard that would apply in an appraisal
proceeding. Id. at *50.
To reiterate, in its appraisal jurisprudence, the Delaware Supreme Court has not yet
been asked to rule on the reliability of a sale process involving a single-bidder strategy, no
pre-signing outreach, and a passive post-signing market check. The closest precedent is
15
See id. at *44. The PLX Trial decision included an appendix that collected
decisions approving a passive market check. The table somehow swapped the details of the
passive market check in Braunschweiger v. American Home Shield Corporation, 1989 WL
128571 (Del. Ch. Oct. 26, 1989), with the details from In re Formica Corporation
Shareholders Litigation, 1989 WL 25812 (Del. Ch. Mar. 22, 1989). A corrected version is
attached to this decision as an appendix.
60
Aruba, where the dynamics of the sale during the pre-closing phase resembled a single-
bidder strategy, although the company’s banker did engage in some minimal outreach.
The pre-signing phase of the sale process in Aruba had two stages. See Verition P’rs
Master Fund Ltd. v. Aruba Networks, Inc. (Aruba Trial), 2018 WL 922139, at *7–8 (Del.
Ch. Feb. 15, 2018) (subsequent history omitted). The first stage began in late August 2014,
when HP approached Aruba about a deal. Aruba hired an investment banker (Qatalyst),
who identified thirteen potential partners and approached five of them. For reasons having
“nothing to do with price,” no one was interested. Id. at *10. Aruba and HP entered into an
NDA that restricted HP from speaking with Aruba management about post-transaction
employment, and HP began conducting due diligence. Id. at *11. Despite the restriction in
the NDA, HP asked Aruba’s CEO, Dominic Orr, if he would take on a key role with the
combined entity. Orr replied that he had no objection. Id.
The parties seemed to be making progress towards a deal, but the HP board of
directors balked at making a bid without further analysis, recalling the fallout from a
disastrous acquisition in 2011. In November 2014, Aruba terminated discussions, bringing
the first stage of the pre-signing process to a close. Id. at *12.
For its part, HP continued to evaluate an acquisition of Aruba. In December 2014,
HP tapped Barclays Capital Inc. as its financial advisor. That firm had worked for Aruba
and had been trying to secure the sell-side mandate. Id. at *13. On January 21, 2015, HP’s
CEO met with Orr for dinner. During the meeting, when HP’s CEO proposed resuming
merger talks, Orr responded with enthusiasm and suggested trying to announce a deal by
early March. But HP’s CEO also told Orr that because Qatalyst had represented the seller
61
in HP’s disastrous acquisition from 2011, HP would not proceed if Aruba used Qatalyst.
Id. at *14.
The Aruba board decided to move forward with the deal and informed Qatalyst
about HP’s ukase. Aruba was obligated to pay Qatalyst a fee in the event of a successful
transaction, so it kept Qatalyst on as a behind-the-scenes advisor. From then on, Qatalyst’s
primary goal was to repair its relationship with HP, and Qatalyst regarded a successful sale
of Aruba to HP as a key step in the right direction. Aruba also needed a new HP-facing
banker. It hired Evercore, a firm that was trying to establish a presence in Silicon Valley.
During the sale process, Evercore likewise sought to please HP, viewing HP as a major
source of future business. See id. at *9, *15–16, *19, *21.
The ensuing negotiations proceeded quickly. HP had anticipated making an opening
bid of $24 per share, but after Orr’s enthusiastic response, HP opened at $23.25 per share.
Id. at *16–17. Qatalyst reached out to a sixth potential strategic partner, but it was not
interested. Id. at *17. The Aruba board decided to counter at $29 per share. Evercore
conveyed the number to Barclays, but when Barclays dismissed it, Evercore emphasized
Aruba’s desire to announce a deal quickly. Id. at *17–18. On February 10, 2015, twenty
days after HP resumed discussions with Orr, the Aruba board agreed to a price of $24.67
per share. Id. at *19. The parties negotiated a merger agreement, and on March 1, 2015,
the Aruba board approved it.
The post-signing phase was uneventful. On March 2, 2015, Aruba and HP
announced the merger. The merger agreement (i) contained a no-shop clause subject to a
fiduciary out, (ii) conditioned the out for an unsolicited superior proposal on compliance
62
with an unlimited match right that gave HP five days to match the first superior proposal
and two days to match any subsequent increase, and (iii) required Aruba to pay HP a
termination fee of $90 million, representing 3% of Aruba’s equity value. No competing
bidder emerged, and on May 1, 2015, Aruba’s stockholders approved the merger. Id. at
*21–22.
Although the sale process in Aruba had flaws, the trial court found that it was
sufficiently reliable to make the deal price a persuasive indicator of fair value. Overall, the
trial court viewed the HP-Aruba merger as “a run-of-the-mill, third party-deal,” where
“[n]othing about it appear[ed] exploitive.” Id. at *38. The petitioners argued that the deal
price resulted from a closed-off sale process in which HP had not faced a meaningful threat
of competition. Id. at *39. The trial court rejected that contention, noting that the petitioners
failed “to point to a likely bidder and make a persuasive showing that increased competition
would have led to a better result.” Id. (citing Dell, 177 A.3d at 28–29, 32, 34).
The petitioners also argued that the negotiators’ incentives undermined the pre-
signing phase, citing the desire of Aruba’s bankers to cater to HP and the more subtly
divergent interests of Aruba’s CEO. The trial court found that although the petitioners
proved that Aruba could have negotiated more aggressively, they did not prove that “the
bankers, [the CEO], the Aruba Board, and the stockholders who approved the transaction
all accepted a deal price that left a portion of Aruba’s fundamental value on the table.” Id.
at *44.
In other portions of the decision, the trial court found that Aruba’s unaffected
trading price was a reliable indicator of fair value and rejected the parties’ DCF valuations
63
as unreliable. These holdings left the trial court with two reliable valuation indicators: the
unaffected trading price and the deal price. The trial court determined that the unaffected
trading price was the better measure of the fair value of Aruba’s shares. See id. at *53–55.
On appeal, the Delaware Supreme Court reversed. The high court found that the
trial court had incorrectly relied on the unaffected trading price, but it accepted the trial
court’s finding that the deal price was a reliable indicator of fair value. Aruba, 210 A.3d at
141–42.
Addressing the petitioners’ claim that the pre-signing phase of the sale process was
insufficient to establish a competitive bidding dynamic, the Delaware Supreme Court
emphasized that
when there is an open opportunity for many buyers to buy and only a few bid
(or even just one bids), that does not necessarily mean that there is a failure
of competition; it may just mean that the target’s value is not sufficiently
enticing to buyers to engender a bidding war above the winning price.
Id. at 136. Applying this principle to the facts in Aruba, the high court explained:
Aruba approached other logical strategic buyers prior to signing the deal with
HP, and none of those potential buyers were interested. Then, after signing
and the announcement of the deal, still no other buyer emerged even though
the merger agreement allowed for superior bids. It cannot be that an open
chance for buyers to bid signals a market failure simply because buyers do
not believe the asset on sale is sufficiently valuable for them to engage in a
bidding contest against each other. If that were the jurisprudential
conclusion, then the judiciary would itself infuse assets with extra value by
virtue of the fact that no actual market participants saw enough value to pay
a higher price. That sort of alchemy has no rational basis in economics.
Id. On the facts presented, the level of competition in Aruba was sufficient to support the
reliability of the deal price.
64
The Delaware Supreme Court also explained that the negotiations between Aruba
and HP over price had important implications for the reliability of the deal price:
[A] buyer in possession of material nonpublic information about the seller is
in a strong position (and is uniquely incentivized) to properly value the seller
when agreeing to buy the company at a particular deal price, and that view
of value should be given considerable weight by the Court of Chancery
absent deficiencies in the deal process.
Id. at 137. The high court noted that HP and Aruba went “back and forth over price” and
that HP had “access to nonpublic information to supplement its consideration of the public
information available to stock market buyers . . . .” Id. at 139. The Delaware Supreme Court
elsewhere emphasized that “HP had signed a confidentiality agreement, done exclusive due
diligence, gotten access to material nonpublic information,” and “had a much sharper
incentive to engage in price discovery than an ordinary trader because it was seeking to
acquire all shares.” Id. at 140. On the facts presented, the extent of the negotiations in
Aruba was sufficient to support the reliability of the deal price.
The high court ultimately concluded that Aruba’s sale process was sufficiently
reliable to render the deal price the best measure of fair value. The Delaware Supreme
Court declined to use the trial court’s estimate of the deal price minus synergies, instead
adopting HP’s contemporaneous synergies estimate and remanding with instructions that
“final judgment be entered for the petitioners in the amount of $19.10 per share plus any
interest to which the petitioners are entitled.” Id. at 142.
The Aruba decision technically did not involve a single-bidder process, but the
dynamics closely resembled one. Although Qatalyst reached out to five bidders at the
beginning of the first phase of the pre-signing process, none of those parties had any interest
65
in Aruba. After this development, both Qatalyst and Aruba’s CEO concluded that Aruba’s
“only (but strong) weapon is to say we go alone.” Aruba Trial, 2018 WL 922139, at *10.
Later, Aruba’s CEO had a “pretty open dialogue” with HP during which he informed HP
that Aruba was “not running a sales process” and did not attempt to posture about pitting
HP against anyone else. Id. at *40 (internal quotation marks omitted). During the second
phase of the pre-signing process, after HP re-engaged, HP understood that Aruba was not
pursuing other options. Id. at *41. The negotiations unfolded in a manner consistent with a
single-bidder dynamic. See id.
In concluding that the deal price was a reliable indicator of fair value, the trial court
considered a number of factors, including that “HP and Aruba agreed to terms for the
merger agreement that the petitioners have not meaningfully challenged.” Id. at *38. After
describing the suite of defensive measures in the merger agreement, the trial court noted
that “[t]his combination of defensive provisions would not have supported a claim for
breach of fiduciary duty.” Id. The petitioners had argued about a lack of competition during
the pre-signing phase, and the trial court had discussed that factor at length, ultimately
rejecting the objection. See id. at *39–41. On appeal, the Delaware Supreme Court
emphasized that a failure of competition does not result simply because a limited number
of parties bid, “or even just one bids.” Aruba, 210 A.3d at 136. The Delaware Supreme
Court also emphasized the reliability of the price that resulted from the “back and forth”
between Aruba and HP. Id. at 139.
Given these precedents, I cannot agree that a reliable sale process must invariably
involve some level of active outreach during the pre-signing phase. By making this
66
observation, I am not suggesting that the Delaware Supreme Court has ever endorsed a
single-bidder process for purposes of appraisal, nor that any of the precedents that this
decision has discussed are squarely on point. Nor am I claiming to have any privileged
insight into how the Delaware Supreme Court would or should evaluate the persuasiveness
of a single-bidder strategy on the facts of any particular case. It nevertheless seems to me
that if the proponent of a single-bidder process could show that the merger agreement
allowed for a passive post-signing market check in line with what decisions have held is
sufficient to satisfy enhanced scrutiny, and if there were no other factors that undermined
the sale process, then the deal price would provide persuasive evidence of fair value.
This decision has already found that the sale process exhibited objective indicia of
reliability. As noted and as discussed in greater detail below, the petitioners have not raised
a meaningful challenge to the post-signing market check. The operative question for
purposes of examining the pre-signing phase is not whether Stillwater’s process fell short
of what would have been optimal, but rather whether the pre-signing process sufficiently
impaired the sale process as a whole, including the post-signing phase, so as to prevent the
deal price from serving as a persuasive indicator of fair value.
b. The Relative Involvement Of McMullen And The Board
In The Pre-Signing Phase
In their initial challenge to the pre-signing phase, the petitioners attack McMullen’s
role in the pre-signing process. They contend that McMullen acted improperly by pursuing
Sibanye’s indication of interest without authorization from the Board and contrary to its
direction to pursue acquisitions or a merger of equals. See PTOB at 37. They also criticize
67
McMullen for starting to engage with Sibanye in January 2016, but failing to inform the
Board until after receiving an expression of interest from Sibanye in July. During this
period, McMullen met with Sibanye’s senior executives at least twice to discuss a sale of
Stillwater, reached an understanding with Sibanye’s CEO on pricing the deal at a 30%
premium over Stillwater’s thirty-day VWAP, and arranged a multi-day site visit for
Sibanye personnel.
The petitioners also contend that after the Board learned of Sibanye’s expression of
interest in July 2016, the Board did not exercise meaningful oversight over the sale process.
They accurately observe that the record lacks any evidence of meaningful engagement by
the Board until October 3, 2016, two months before signing, when the Board received a
report on the Company’s outreach to various parties, instructed McMullen to obtain formal
proposals for retaining an investment bank, instructed McMullen to create a cash flow
model that could be used to value the Company, and decided not to form a special
committee. See JX 246.
The petitioners correctly contend that these facts could have contributed to findings
that McMullen and the directors breached their duty of care under the enhanced scrutiny
standard of review.16 But the enhanced scrutiny analysis would not have ended there. The
16
See Citron v. Fairchild Camera & Instr. Corp., 569 A.2d 53, 66 (Del. 1989) (“[I]n
change of control situations, sole reliance on hired experts and management can taint[] the
design and execution of the transaction. Thus, we look particularly for evidence of a
board’s active and direct role in the sale process.” (internal quotation marks omitted));
Mills Acq. Co. v. Macmillan, Inc., 559 A.2d 1261, 1281 (Del. 1989) (“[A] board of directors
. . . may not avoid its active and direct duty of oversight in a matter as significant as the
sale of corporate control.”); Cede & Co. v. Technicolor, Inc. (Technicolor II), 634 A.2d
68
C & J Energy decision likewise involved a CEO that began deal discussions without formal
board authorization, engaged for months without formally reporting to the board, made a
revised offer without board approval, and generally proceeded by asking for forgiveness
rather than by getting permission. See C & J Energy, 107 A.3d at 1059. After considering
the totality of the sale process, the Delaware Supreme Court concluded that the facts would
not support a fiduciary breach, placing heavy reliance on the directors’ decision to “test[]
the transaction through a viable passive market check . . . .” Id. at 1053.
The outcome in PLX likewise shows that the existence of problems during the pre-
signing process does not necessarily undermine the reliability of the deal price. The trial
court in PLX found that the directors had breached their fiduciary duties under the enhanced
scrutiny standard because of an undisclosed tip from the eventual buyer to a key director
and the company’s banker. PLX Trial, 2018 WL 5018535, at *15–16, *32–35, *44–47.
Despite this defect, the sale process provided reliable evidence of the company’s value
based primarily on the adequacy of the company’s post-signing market check. See id. at
*55 (“More important than the pre-signing process was the post-signing market check.”).
345, 368 (Del. 1993) (explaining that directors must maintain “an active and direct role in
the context of a sale of a company from beginning to end”); In re Rural Metro Corp.
S’holders Litig., 88 A.3d 54, 91 (Del. Ch. 2014) (“As a threshold matter, the decision to
initiate a sale process falls short under enhanced scrutiny because it was not made by an
authorized corporate decisionmaker. The Board did not make the decision to launch a sale
process, nor did it authorize the Special Committee to start one.”), aff’d sub nom. RBC
Capital Mkts., LLC v. Jervis, 129 A.3d 816 (Del. 2015); id. (“One of the Delaware Supreme
Court’s clearest teachings is that ‘directors cannot be passive instrumentalities during
merger proceedings.’” (quoting Technicolor II, 634 A.2d at 368)).
69
Applying the same damages standard that would govern in an appraisal proceeding, the
trial court found that the sale process was sufficiently reliable to render the plaintiffs’
damages calculation unpersuasive, resulting in a failure of proof. Id. at *50–55. The
Delaware Supreme Court affirmed the judgment based solely on the trial court’s damages
ruling. See PLX, 2019 WL 2144476, at *1.
McMullen’s unsupervised activities and the Board’s failure to engage in meaningful
oversight until October 2016 represent flaws in the pre-signing process. They are factors
that must be taken into account, but they do not inherently disqualify the sale process from
generating reliable evidence of fair value.
In this case, McMullen’s unsupervised activities did not comprise the entirety of the
Company’s sale process. Ultimately, after the Board engaged, Stillwater formally retained
BAML, conducted an expedited pre-signing canvass, and entered into the Merger
Agreement. The terms of the Merger Agreement facilitated a meaningful post-signing
market check, and no other buyer emerged even though the merger agreement allowed for
superior bids. As in Dell, the petitioners did not point to any evidence that another party
was interested in proceeding and would have bid if McMullen and the Board had acted
differently. See Dell, 177 A.3d at 29.
c. McMullen’s Personal Interest In A Transaction
In their next challenge to the pre-signing process, the petitioners contend that
McMullen undermined the sale process because he planned to leave Stillwater, and “he
wanted the benefit of a strategic transaction (i) to boost the Company’s stock price prior to
his departure and (ii) to maximize his payout upon stepping down as CEO.” PTOB at 39.
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The petitioners correctly observe that by leaving after a transaction, McMullen would be
entitled to unvested equity awards and accelerated retention payments that he could not
obtain if he left without a transaction.
The petitioners also point out that McMullen devoted considerable time to
developing and selling his personal investments outside of Stillwater. They cite
McMullen’s contemporaneous service in 2016 as CEO of Nevada Iron and as President of
New Chris, even though McMullen’s employment agreement with Stillwater limited
McMullen’s outside activities to board service and otherwise required him to devote his
full efforts to Stillwater. See JX 114. During 2016, McMullen raised money for the
successor company to New Chris and sold Nevada Iron. See McMullen Tr. 709, 863–64.
The petitioners cite McMullen’s activities (i) to show that McMullen was trying to
maximize his personal wealth before retiring to Turks & Caicos, (ii) to suggest that
McMullen might have done a better job with the sale process if he had not been pursuing
his other investments, and (iii) as further evidence that the Board failed to provide active
oversight.
Sibanye takes the extreme position that “there is no evidence to suggest that Mr.
McMullen was motivated by anything other than maximizing stockholder value.” Dkt. 211
at 59. Sibanye points to McMullen’s decision in March 2016 to extend his employment by
two years, claiming simplistically that if “McMullen’s intention was truly to do a quick
sale and leave the company, there would have been no need for him to renew his
employment agreement since his prior contract did not expire until December 31, 2016 and
contained essentially the same termination benefits as the new contract.” Id. at 60. To the
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contrary, McMullen understood that completing a sale to Sibanye or another buyer might
extend past December 31. Extending his employment agreement was the smart play for
McMullen personally. Although Sibanye has not argued this point, it was also likely good
for Stillwater, because it avoided the prospect of a near-term issue with CEO succession.
Sibanye has no meaningful response to McMullen’s pursuit of his other activities.
Sibanye says they were permitted, but the petitioners have correctly described McMullen’s
employment agreement as only authorizing board service, not his more active roles.
Sibanye also contends that his outside interests were disclosed in public filings, but that is
not the point. The issue is whether the interests undermined the sale process, not whether
they were disclosed. On this final point, Sibanye asserts that the petitioners “have pointed
to no evidence that these outside interests presented an actual conflict, that these interests
competed with or were adverse to Stillwater’s interests, or that they otherwise interfered
with Mr. McMullen’s ability to carry out his duties as CEO of Stillwater.” Id.
Sibanye has focused on the critical question: whether McMullen’s personal interests
undermined the sale process. Senior executives almost invariably have divergent incentives
during a sale process, often because of change-in-control agreements, and equally often
because the transaction will have implications for their personal employment situations.
Two Delaware appraisal precedents provide insight into factual scenarios involving
divergent incentives of this type. The Aruba decision involved a sale process where the top
executive and the company’s investment bankers had conflicting incentives. The CEO
wanted to retire, but he cared deeply about the company and its employees. When HP
proposed to acquire Aruba and keep the CEO on to integrate the companies, it offered the
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perfect path “to an honorable personal and professional exit.” Aruba Trial, 2018 WL
922139, at *5; see id. at *43 (analyzing CEO’s conflict). Aruba’s investment bankers both
wanted to curry favor with HP. Qatalyst was desperate to save its Silicon Valley franchise,
and Evercore was auditioning for future business. Id. at *43. The trial court acknowledged
the petitioners’ concerns, but found that the conflicting incentives did not undermine the
deal price as an indicator of fair value:
The evidence does not convince me that the bankers, Orr, the Aruba Board,
and the stockholders who approved the transaction all accepted a deal price
that left a portion of Aruba’s fundamental value on the table. Perhaps
different negotiators could have extracted a greater share of the synergies
from HP in the form of a higher deal price. Maybe if Orr had been less eager,
or if Qatalyst had not been relegated to the back room, then HP would have
opened at $24 per share. Perhaps with a brash Qatalyst banker leading the
negotiations, unhampered by the Autonomy incident, Aruba might have
negotiated more effectively and gotten HP above $25 per share. An outcome
along these lines would have resulted in HP sharing a greater portion of the
anticipated synergies with Aruba’s stockholders. It would not have changed
Aruba’s standalone value. Hence, it would not have affected Aruba’s fair
value for purposes of an appraisal.
Id. at *44. On appeal, the Delaware Supreme Court accepted the reliability of the deal price
as a valuation indicator and used it when making its own fair value determination. Aruba,
210 A.3d at 141–42.
The Dell decision also involved a conflict: Mr. Dell, the company’s founder and top
executive, was a buy-side participant in the management buyout and would emerge from
the transaction with a controlling stake. A special committee negotiated the terms of the
transaction with the financial sponsor backing the deal, but the trial court regarded Mr.
Dell’s involvement on the buy side as a factor cutting against the reliability of the deal
price. For example, the trial court found that Mr. Dell gave the buyout group a leg-up given
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his relationships within the company and his knowledge of its business, and the trial court
accepted the testimony of a sale-process expert that if bidders competed to pay more than
what Mr. Dell’s group would pay, then they risked overpaying and suffering the winner’s
curse. In re Appraisal of Dell Inc. (Dell Trial), 2016 WL 3186538, at *42–43 (Del. Ch.
May 31, 2016) (subsequent history omitted). Equally important, Mr. Dell was a net
purchaser of shares in the buyout, so any increase in the deal price cost him money.
If Mr. Dell kept the size of his investment constant as the deal value
increased, then Silver Lake would have to pay more and would demand a
greater ownership stake in the post-transaction entity. [The petitioners’ sale-
process expert] showed that if Mr. Dell wanted to maintain 75% ownership
of the post-transaction entity, then he would have to contribute an additional
$250 million for each $1 increase in the deal price. If Mr. Dell did not
contribute any additional equity and relied on Silver Lake to fund the
increase, then he would lose control of the post-transaction entity at a deal
price above $15.73 per share. Because Mr. Dell was a net buyer, any party
considering an overbid would understand that a higher price would not be
well received by the most important person at the Company.
Id. at *43 (footnote omitted). The trial court found that for purposes of price discovery in
an appraisal case, Mr. Dell’s involvement and incentives undermined the reliability of the
sale process and the persuasiveness of the deal price. Id. at *44.
On appeal, the Delaware Supreme Court held that Mr. Dell’s involvement in the
buyout group had not undermined the sale process. See Dell, 177 A.3d at 32–33. The high
court noted that “the [trial court] did not identify any possible bidders that were actually
deterred because of Mr. Dell’s status.” Id. at 34. The Delaware Supreme Court also
emphasized Mr. Dell’s willingness to work with rival bidders during due diligence and the
absence of evidence that Mr. Dell would have left the company if a rival bidder prevailed.
Id. at 32–34. The high court concluded that the lack of a higher bid did not call into question
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the sale process, because “[i]f a deal price is at a level where the next upward move by a
topping bidder has a material risk of being a self-destructive curse, that suggests the price
is already at a level that is fair.” Id. at 33.
The facts of C & J Energy are also relevant. The merger in C & J Energy resulted
from a CEO-driven process, and there was evidence that the sell-side CEO had personal
reasons to favor the deal because he would be in charge of the combined company and
receive significantly greater compensation. See C & J Energy, 107 A.3d at 1064. After the
key terms of the transaction had been negotiated, but before it was formally approved, the
CEO went so far as to demand a side letter “affirming that C & J’s management would run
the surviving entity and endorsing a generous compensation package.” Id. When the
acquirer balked, the CEO threatened to terminate the discussions. He got his way, and the
deal was announced as planned. Id. at 1065. There was also evidence that C & J Energy’s
primary financial advisor acted as a banker for the deal rather than for C & J Energy, and
the banker had divergent interests as a source of financing for the deal. See id. at 1056–57.
The Delaware Supreme Court held that the facts could not support a reasonable probability
that the defendants had failed to obtain the best transaction reasonably available, relying
heavily on the post-signing market check. See id. at 1053, 1067–68.
In this case, McMullen’s personal interests are not as serious as the buy-side conflict
that failed to undermine the sale process in Dell. They more closely resembled the
divergent sell-side interests that affected the negotiators in Aruba and C & J Energy. Like
the CEOs and bankers in those cases, McMullen’s change-of-control benefits gave him a
personal reason to secure a deal under circumstances where a disinterested participant
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might prefer a standalone option. McMullen appears to have been motivated by his desire
to maximize his personal wealth and retire to a greater degree than the negotiators in Aruba.
Stillwater’s general counsel (Wadman) recognized McMullen’s conflict, voiced his
concerns to the Board, and ultimately resigned when McMullen secured more favorable
treatment in the Merger for his own change-in-control benefits and for his CFO. See JX
526. As a result, McMullen’s motivations most closely resembled the incentives of the
CEO in C & J Energy, who held up the entire transaction until the acquirer agreed to a side
letter “affirming that C & J’s management would run the surviving entity and endorsing a
generous compensation package.” C & J Energy, 107 A.3d at 1064. The Delaware Supreme
Court held that the facts in C & J Energy did not provide reasonable grounds for a breach
of fiduciary duty under the enhanced scrutiny standard of review.
At the same time, McMullen had ample reason to pursue the best deal possible for
Stillwater. From his testimony and demeanor, McMullen seems like someone who took
considerable satisfaction in his ability to achieve outcomes. As a matter of professional
pride, he wanted to sell Stillwater for the best price he could. He also had economic reasons
to extract a higher price. As disclosed in the proxy statement for the Merger, McMullen
held 131,248 common shares, 155,891 restricted stock unit awards, and 222,556
performance based restricted stock unit awards, for a total of 509,695 common shares or
share equivalents. See JX 525 at 78. At the deal price, these common shares and share
equivalents had a value of $9,174,510. To state the obvious, every $1 increment in the deal
price generated another half-a-million dollars for McMullen.
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When directors or their affiliates own “material” amounts of common stock,
it aligns their interests with other stockholders by giving them a “motivation
to seek the highest price” and the “personal incentive as stockholders to think
about the trade off between selling now and the risks of not doing so.”
Chen v. Howard-Anderson, 87 A.3d 648, 670–71 (Del. Ch. 2014) (quoting Dollar Thrifty,
14 A.3d at 600); see also Lender Processing, 2016 WL 7324170, at *22 (discussing
incentive to maximize deal price where target managers were net sellers and would not
retain jobs post-merger).
Consistent with his personal desire to obtain a good price for Stillwater, McMullen
negotiated with Sibanye to increase the consideration. When Sibanye indicated interest at
$15.75 per share in July 2016, McMullen did not rush to sign up a deal. When Sibanye
raised indication of interest to $17.50 to $17.75 per share in December 2016, McMullen
and the Board demanded a higher price. Even after Sibanye offered $18.00 per share,
McMullen wanted more. Only after Sibanye twice said that $18.00 per share was its best
and final offer did McMullen and the Board finally agree to transact.
As with McMullen’s initiation of the sale process and the Board’s failure to engage
in meaningful oversight of his activities until October 2016, McMullen’s personal
motivation to exit from Stillwater and maximize his personal wealth represents a flaw in
the sale process. Although Wadman’s noisy withdrawal highlighted these issues,
McMullen’s personal interests as a whole do not appear materially different from interests
that have not been sufficient in other cases to undermine the reliability of sale processes.
On balance, the evidence does not convince me that McMullen’s divergent interests led
either McMullen or the Board to accept a deal price that left a portion of Stillwater’s
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fundamental value on the table, particularly in light of the effective post-signing market
check that Stillwater conducted.
d. The “Soft-Sell”
Turning to the details of the pre-signing phase, the petitioners contend that
Stillwater’s pre-signing market check fell short because until BAML was formally
retained, McMullen relied on a “soft sell” approach that provided potential buyers with
insufficient information to conclude that Stillwater was for sale and used unauthorized
agents who could not formally engage on Stillwater’s behalf. See PTOB at 44–45.
The evidence demonstrates that on the facts of this case, the “soft sell” strategy was
not an effective means of generating interest in the Company. At the same time, the “soft
sell” effort did not do anything to harm either BAML’s abbreviated pre-signing process or
the post-signing market check. The soft sell strategy was not a positive feature of the sale
process, and it does not help support the persuasiveness of the deal price, but it does not
detract from it either.
e. BAML’s Compressed Pre-Signing Market Check
In a further criticism of the pre-signing phase, the petitioners contend that after
BAML was formally retained, BAML did not have time to run an organized and
meaningful process. The petitioners complain that BAML hastily called a list of potentially
interested parties, who then were given only days after signing an NDA to prepare an
expression of interest. Contrary to McMullen’s strong recommendation in September 2016
that any bidder visit the Company’s mines before providing an expression of interest, the
November timeline did not accommodate site visits until after a party made an expression
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of interest. See JX 229 at ‘603. At trial, the petitioners introduced testimony from a sale
process expert who questioned the effectiveness of BAML’s abbreviated pre-signing
process. See Gray Tr. 567–68. Even Sibanye’s sale process expert questioned the
effectiveness of the type of condensed outreach that BAML attempted to conduct. See
Stowell Tr. 947–48.
The petitioners have made a persuasive case that the BAML’s pre-signing process
was suboptimal, but they have not shown that it was worthless, nor that it was harmful. To
the contrary, when evaluated against Delaware precedents, the pre-signing efforts, while
rushed, were a positive factor for the sale process.
BAML received its formal mandate on November 7, 2016. The next day, BAML
received a package of information from the Company, including Sibanye’s indication of
interest from July, the non-disclosure agreements with Hecla and Coeur, a cash flow model,
and instructions for accessing the data room. BAML understood that Sibanye was pushing
to close a deal by December and swung into action to do what it could. By November 9,
BAML had generated a plan for an expedited market check that contemplated reaching out
to twenty parties over the next two days, working with parties who expressed interest for
the rest of the month, and then receiving expressions of interest at the end of the month. At
that point, the Board would decide how to proceed.
In accordance with its expedited plan, BAML engaged directly with Sibanye, Coeur,
and Hecla. BAML contacted five of the six parties that BAML regarded as “Possibly
Interested,” missing one. BAML contacted eight of the twelve additional parties that
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BAML had identified, missing four. BAML also contacted Northern Star, even though they
originally had been listed as not interested.
Ten of the fourteen parties had no interest, but four engaged. One quickly withdrew,
two ultimately expressed interest in a merger of equals, and the fourth dropped out by late
November. Coeur also dropped out, and Hecla indicated that it needed to find a partner to
pursue a transaction. Although the Board extended Hecla’s deadline for submitting an
indication of interest, and BAML followed up with Hecla, Hecla did not respond. At the
end of November, an additional party—Northam—asked to be included in the Company’s
process.
During a meeting on December 2, 2016, the Board considered the status of the
Company’s process. At that point, the Board’s only definitive expression of interest was a
proposal that Sibanye had submitted on December 1 to acquire the Company for between
$17.50 and $17.75 per share in cash. The Board decided to focus on Sibanye, which later
raised its offer to $18 per share. Northam decided to withdraw, and on December 8, the
Board approved the Merger Agreement.
Although compressed and expedited, BAML’s outreach resulted in fourteen other
parties hearing about Stillwater. In addition to Sibanye, a total of seven parties engaged to
some degree. Ultimately, no one other than Sibanye submitted an indication of interest.
The plaintiffs have criticized the timing, pacing, and scope of the pre-signing process, but
it resulted in BAML contacting the “logical strategic buyers” before Stillwater signed up
its deal with Sibanye. Cf. Aruba, 210 A.3d at 136 (observing that “Aruba approached other
logical strategic buyers prior to signing the deal with HP, and none of those potential buyers
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were interested.”). The number of meaningful contacts compares favorably with or is
similar to the facts in the Delaware Supreme Court precedents.17 When considering
whether a deal price provides persuasive evidence of fair value, it is pertinent that the
parties contacted failed to pursue a merger when they had a free chance to do so. See DFC,
172 A.3d at 376 (citing “failure of other buyers to pursue the company when they had a
free chance to do so” as factor supporting fairness of deal price).
On balance, BAML’s pre-signing efforts were helpful. At a minimum, the
abbreviated process generated incremental interest in Stillwater and gave those parties who
engaged a leg up for the post-signing market check. Even the parties who were contacted
but did not engage had the benefit of knowing that a transaction potentially was afoot. As
with the “soft sell” strategy, there is no evidence that BAML’s abbreviated process did
anything to harm the sale process. The bidders who participated in the abbreviated pre-
signing phase were free to bid during the post-signing phase. There is no evidence that any
were alienated or put off by the Company’s pre-signing efforts.
17
See Aruba, 210 A.3d at 136–39, 142 (adopting deal price less synergies as fair
value where company’s banker contacted five potential buyers after HP’s initial outreach,
none were interested, sale process terminated, and sale process later resumed as single-
bidder engagement with HP, with only one quick contact to a sixth party); Dell, 177 A.3d
at 28 (finding competitive pre-signing process where Silver Lake competed one-at-a-time
with interested parties); DFC, 172 A.3d at 350, 355, 376 (finding “competitive process of
bidding” where company’s banker contacted “every logical buyer,” three expressed
interest, and two named a preliminary price with one dropping out before serious
negotiations commenced).
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BAML’s abbreviated pre-signing process was not ideal. Nevertheless, contrary to
the petitioners’ contentions, it was a positive factor for the reliability of the sale process.
f. The Negotiations With Sibanye
In their penultimate objection to Stillwater’s pre-signing process, the petitioners
contend that Sibanye pressured Stillwater to sign a merger agreement before the
Company’s rising stock price made what Sibanye was willing to pay look inadequate. The
evidence demonstrates that early in his discussions with Sibanye, McMullen and Froneman
recognized that any transaction would require a premium over Stillwater’s trading price
and agreed in principle on a 30% premium over the thirty-day VWAP. On October 17,
2016, Froneman told McMullen that Sibanye’s offer of a “30% premium to VWAP
remained unchanged” and that Sibanye’s board of directors unanimously supported the
transaction. JX 281 at ‘425. Another Sibanye executive repeated this message on
November 22. PTO ¶ 243.
Sibanye, however, needed to borrow the funds to acquire Stillwater, and by
November 30, 2016, Stillwater’s share price had recovered to a point where a 30%
premium over the thirty-day VWAP equaled $18.25 per share. Sibanye could not pay more
than $18 per share without supplementing the consideration with cash on hand or a draw
from its revolving credit line, which Sibanye did not want to do. Rather than sticking with
the concept of a 30% premium over a thirty-day VWAP, Sibanye disavowed that concept,
instead treating its prior indication of interest from July 2016 as a fixed price of $15.75 per
share. On December 1, 2016, Sibanye proposed a transaction in a range of $17.50 to $17.75
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per share, below what the 30% premium to the thirty-day VWAP would have
contemplated.
The petitioners object that rather than breaking off discussions or continuing the
sale process, the Board negotiated a price of $18.00 per share, representing the maximum
that Sibanye could pay under its financing arrangements. They argue that the highest price
a bidder is willing to pay is not the same as fair value. See, e.g., M.P.M. Enters., 731 A.2d
at 797 (cautioning that the merger price must be supported “by evidence tending to show
that it represents the going concern value of the company rather than just the value of the
company to one specific buyer”); In re Appraisal of Orchard Enters., Inc., 2012 WL
2923305, at *5 (Del. Ch. July 18, 2012) (“[A]lthough I have little reason to doubt Orchard’s
assertion that no buyer was willing to pay Dimensional $25 million for the preferred stock
and an attractive price for Orchard’s common stock in 2009, an appraisal must be focused
on Orchard’s going concern value.”).
The petitioners’ objection resembles similar arguments that the Delaware Supreme
Court rejected in Dell and DFC. In Dell, the trial court found that the price negotiations
during the pre-signing phase were limited by what the financial sponsors could pay based
on their leverage-buyout pricing models. The respondent had conceded that the LBO model
was not “oriented toward solving for enterprise value,” and the special committee’s
financial advisors had briefed the committee about the LBO model and how financial
sponsors would use it. Dell Trial, 2016 WL 3186538, at *29 (internal quotation marks
omitted). The committee’s financial advisors used a similar model to calculate the
maximum prices that a financial sponsor could pay. See id. at *30. The evidence indicated
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that the financial sponsors bid consistently with the results of an LBO model, and their
negotiations with the committee proceeded within that framework. See id. at *30–32. In
addition to the record evidence, the trial court relied on treatises which explained how the
price generated by an LBO model can diverge from fair value.18 Based on this evidence,
the trial court found that the original merger consideration “was dictated by what a financial
sponsor could pay and still generate outsized returns,” rather than Dell’s value as a going
concern. Id. at *32.
Three months later, the trial court in DFC reached a similar conclusion when
evaluating the deal price paid by a financial sponsor (Lone Star) to acquire the company
(DFC) that was the subject of the appraisal proceeding. Although the trial court regarded
the deal price as sufficiently reliable to use as a valuation input, the court expressed concern
that “Lone Star’s status as a financial sponsor . . . focused its attention on achieving a
18
See Dell Trial, 2016 WL 3186538, at *29 & n.24 (citing Joshua Rosenbaum &
Joshua Pearl, Investment Banking: Valuation, Leveraged Buyouts, and Mergers &
Acquisitions 195–96 (2009) (“[An LBO model] is used . . . to determine an implied
valuation range for a given target in a potential LBO sale based on achieving acceptable
returns. . . .”); and Donald M. DePamphilis, Mergers, Acquisitions, and Other
Restructuring Activities 506 (7th ed. 2014) (“[T]he DCF analysis solves for the present
value of the firm, while the LBO model solves for the internal rate of return.”)); id. at *29
nn. 25, 26 (citing Rosenbaum & Pearl, supra, at 195–96 (“In an M&A sell-side advisory
context, the banker conducts LBO analysis to assess valuation from the perspective of a
financial sponsor. This provides the ability to set sale price expectations for the seller and
guide negotiations with buyers accordingly . . . .” (emphasis added)); id. at 235–36
(“Traditionally, the valuation implied by LBO analysis is toward the lower end of a
comprehensive analysis when compared to other methodologies, particularly precedent
transactions and DCF analysis. This is largely due to the constraints imposed by an LBO,
including leverage capacity, credit market conditions, and the sponsor’s own IRR
hurdles.”)).
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certain internal rate of return and on reaching a deal within its financing constraints, rather
than on DFC’s fair value.” In re Appraisal of DFC Glob. Corp. (DFC Trial), 2016 WL
3753123, at *22 (Del. Ch. July 8, 2016) (subsequent history omitted).
The appeal from the trial-level ruling in DFC reached the Delaware Supreme Court
before the appeal in Dell. The Delaware Supreme Court rejected the trial court’s finding
that the buyer’s financial constraints limited the price it could pay and caused the deal price
to diverge from fair value, stating:
To be candid, we do not understand the logic of this finding. Any rational
purchaser of a business should have a targeted rate of return that justifies the
substantial risks and costs of buying a business. That is true for both strategic
and financial buyers. It is, of course, natural for all buyers to consider how
likely a company’s cash flows are to deliver sufficient value to pay back the
company’s creditors and provide a return on equity that justifies the high
costs and risks of an acquisition. But, the fact that a financial buyer may
demand a certain rate of return on its investment in exchange for undertaking
the risk of an acquisition does not mean that the price it is willing to pay is
not a meaningful indication of fair value. That is especially true here, where
the financial buyer was subjected to a competitive process of bidding, the
company tried but was unable to refinance its public debt in the period
leading up to the transaction, and the company had its existing debt placed
on negative credit watch within one week of the transaction being
announced. The “private equity carve out” that the Court of Chancery
seemed to recognize, in which the deal price resulting in a transaction won
by a private equity buyer is not a reliable indication of fair value, is not one
grounded in economic literature or this record.
DFC, 172 A.3d at 349–50. When the Delaware Supreme Court subsequently ruled on the
discussion of the LBO model in the appeal from the trial-level ruling in Dell, the high court
relied on its decision in DFC, explaining:
[W]e rejected this view [in DFC] and do so again here given we see “no
rational connection” between a buyer’s status as a financial sponsor and the
question of whether the deal price is a fair price. After all, “all disciplined
buyers, both strategic and financial, have internal rates of return that they
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expect in exchange for taking on the large risk of a merger, or for that matter,
any sizeable investment of its capital.”
Dell, 177 A.3d at 28 (quoting DFC, 172 A.3d at 374–76).
The reasoning that led the Delaware Supreme Court to reject the implications of the
LBO model for deal pricing indicates that comparable constraints on a prevailing bidder’s
ability or willingness to pay—whether resulting from IRR hurdles, a comparatively higher
cost of capital, or limits on the availability of financing—should not undermine the deal
price as an indicator of fair value if the sale process was otherwise sufficiently open. Both
Dell and DFC suggest that a post-signing market test can be the predominant source of
price competition. In Dell, the only participants during the pre-signing phase were the two
financial sponsors, whom the committee permitted to participate at any one time and each
of whom priced their deals using an LBO model. See Dell Trial, 2016 WL 3186538, at *9–
10, *30–31, *37. In DFC, although the company initially engaged in a broad solicitation,
the only bidders who engaged and submitted indications of interest during the pre-signing
phase were two financial sponsors, one of whom soon dropped out. See DFC Trial, 2016
WL 3753123, at *4.
On the facts of this case, Sibanye had the ability to pay more. Although it had not
secured transactional financing that would have supported a price greater than $18.00 per
share, Sibanye could have deployed cash on hand or drawn on its revolving line of credit.
As a rational bidder for Stillwater, Sibanye understandably had a targeted rate of return
that it needed to satisfy to justify the substantial risks and high costs of the acquisition.
That Sibanye did not bid higher does not mean that the price it agreed to pay did not reflect
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fair value when its bid prevailed. See Aruba, 210 A.3d at 136; Dell, 177 A.3d at 28; DFC,
172 A.3d at 349–50, 374–76.
The negotiations between Stillwater and Sibanye over price, together with Sibanye’s
refusal to pay more, provides strong evidence of fair value. In Aruba, the Delaware
Supreme Court explained that
a buyer in possession of material nonpublic information about the seller is in
a strong position (and is uniquely incentivized) to properly value the seller
when agreeing to buy the company at a particular deal price, and that view
of value should be given considerable weight by the Court of Chancery
absent deficiencies in the deal process.
Id. at 137. The high court observed that HP and Aruba went “back and forth over price”
and that HP had “access to nonpublic information to supplement its consideration of the
public information available to stock market buyers . . . .” Id. at 139. The Delaware
Supreme Court elsewhere emphasized that “HP had signed a confidentiality agreement,
done exclusive due diligence, gotten access to material nonpublic information” and “had a
much sharper incentive to engage in price discovery than an ordinary trader because it was
seeking to acquire all shares.” Id. at 140. Given these facts, the extent of the negotiations
in Aruba supported the reliability of the deal price. The same observations apply to Sibanye
on the facts of this case. Sibanye entered into an NDA with Stillwater, conducted extensive
due diligence, obtained access to material nonpublic information, and was “in a strong
position (and is uniquely incentivized) to properly value the seller when agreeing to buy
the company at a particular deal price.”
The fact that Stillwater and Sibanye reached agreement at $18.00 per share is
entitled to considerable weight. Although the petitioners perceive it to be a weakness of
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the pre-sale process, the Delaware Supreme Court’s precedents indicate that it was a
strength.
4. The Challenges To The Post-Signing Phase
In contrast to their many objections to the pre-signing phase, the petitioners have
relatively few disagreements with the post-signing phase. They advance perfunctory
challenges to the terms of the Merger Agreement, claiming that it prevented the
stockholders from capturing the value of an increasing palladium price and foreclosed other
bids. They also contend that the proxy statement contained disclosure violations.
a. The Merger Agreement And The Price Of Palladium
The petitioners observe that the price of palladium increased between signing and
closing. They then object that the Merger Agreement “provided no practical way for
Stillwater’s stockholders to receive that additional value.” PTOB at 51. In cursory fashion,
they criticize the Board for not asserting the existence of a Company Material Adverse
Effect or invoking the fiduciary-out clause. Id. at 52. This objection is not really a criticism
of the sale process, but so be it.
The petitioners never engage with the terms of the Merger Agreement and how it
uses the concept of a Company Material Adverse Effect. The definition of a Company
Material Adverse Effect turns on any “facts, circumstance, condition, event, change,
development, occurrence, result, or effect” that is materially adverse to the Company. JX
575, Annex A, at A-3. The arising of a Company Material Adverse Effect does not mean
that something good has happened to Stillwater, like an increase in value due to rising
commodity prices. It means something very bad has happened to Stillwater. In the Merger
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Agreement, Stillwater represented that it had not suffered a Company Material Adverse
Effect, and the Merger Agreement made the accuracy of this representation a condition to
Sibanye’s obligation to close. See id. §§ 4.10.2, 7.2.1. The Merger Agreement also made
the absence of a Company Material Adverse Effect a separate condition to Sibanye’s
obligation to close. See id. § 7.2.3. Stillwater did not obtain the right to declare something
akin to a Company Material Beneficial Effect and terminate the Merger Agreement on that
basis. The petitioners’ criticism that the Board did not declare a Company Material Adverse
Effect is a turn down a blind alley.
The petitioners likewise never engage with the terms of the Merger Agreement and
the scope of the fiduciary out. The Board had the right to change its recommendation in
favor of the Merger based on (i) its receipt of a “Superior Proposal” or (ii) the occurrence
of an “Intervening Event.” See JX 525, Annex A, § 6.2.4. As permitted by Delaware law,
see 8 Del. C. § 146, the Merger Agreement contained a force-the-vote provision that
obligated Stillwater to take the Merger to a stockholder vote even if the Board changed its
recommendation, but the stockholders would have the benefit of the Board’s negative
recommendation when voting. See id. § 6.17.2 (“Without limiting the generality of the
foregoing, the Company shall submit this Agreement for the adoption by its stockholders .
. . whether or not a Company Adverse Recommendation Change shall have occurred or an
Acquisition Proposal shall have been publicly announced or otherwise made . . . .”). If the
Company’s stockholders voted down the Merger, or under other defined circumstances,
then the Company had the ability to terminate the Merger Agreement. See id. § 8.1.2(ii).
The Board’s ability to change its recommendation for an Intervening Event, however, did
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not include changes in commodity prices. The Merger Agreement defined the concept of
an “Intervening Event” as
any material change, event, effect, occurrence, consequence or development
with respect to the Company or Parent, as applicable, that (i) is unknown and
not reasonably foreseeable as of the date hereof, (ii) does not relate to any
Acquisition Proposals, and (iii) does not arise out of or result from changes
after the date of this Agreement in respect of prices or demand for products.
Id. at A-6; cf. R. Franklin Balotti & A. Gilchrist Sparks, III, Deal Protection Measures and
the Merger Recommendation, 96 Nw. U. L. Rev. 467, 468 (2002) (explaining the
importance of an intervening event provision for the target who “discover[s] the world’s
largest deposit of gold under its headquarters, causing the value of the target to increase
dramatically”). Post-signing changes “in respect of prices or demand” for palladium thus
would not qualify as an Intervening Event and would not support a change of
recommendation. The petitioners’ criticism that the Board did not exercise its fiduciary out
based on changes in commodity prices is another wrong turn.
The record reflects that Stillwater did not want the merger consideration to float
with the price of palladium. McMullen testified that “we wanted to know with certainty
what was the number that we were taking to shareholders as the value proposition.”
McMullen Tr. 770. That was a legitimate goal.
The petitioners may well take these explanations and run with them, claiming that
the situation was even worse than they thought because the Board lacked the power to do
things that the petitioners previously believed the Board had merely failed to consider.
Regardless, the petitioners’ bottom-line criticism of the Merger Agreement misses the
point of what the contract was trying to accomplish. The Merger Agreement was not
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attempting to give the stockholders the benefit of a transaction that included the potential
upside or downside that would result from changes in the price of palladium after signing.
The Merger Agreement was trying to provide stockholders with the ability to opt for the
comparative certainty of deal consideration equal to $18.00 per share.
More broadly, the petitioners are mistaken when they claim that there was no
practical way for Stillwater’s stockholders to receive the additional value that the increased
commodity price could generate. If Stillwater’s stockholders had wanted to capture the
increased value of palladium, then they could have voted down the Merger and kept their
shares. The spot price of palladium was readily available public information that
Stillwater’s stockholders could take into account when deciding how to vote.
b. The Merger Agreement And Competing Bids
In conclusory fashion, the petitioners object that the Merger Agreement “contained
a no solicitation provision and 5-day matching rights,” which the petitioners characterize
as “more buyer friendly than the protections provided in AOL that this Court described as
creating ‘structural disadvantages dissuading any prospective bidder.’” PTOB at 51–52
(quoting AOL, 2018 WL 1037450, at *9, and noting that the decision “describe[ed] a no-
shop provision with a 3.5% termination fee and unlimited 3-day matching rights”). The
petitioners argue that Sibanye’s matching rights deterred interested buyers from making a
topping bid because Sibanye could simply match any competing proposal.
The AOL decision was a fact-specific ruling that turned on the court’s view of the
sale process in that case, after hearing the witnesses at trial and considering the evidentiary
record. The Dell and DFC decisions issued while the matter was pending, and the trial
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court requested supplemental briefing on the effect of those decisions. Both sides continued
to argue for determining fair value based on financial metrics rather than by relying on the
deal price. AOL, 2018 WL 1037450, at *1. The court nevertheless examined the sale
process and regarded the persuasiveness of the deal price as “a close question.” Id. On
balance, the court decided not to rely on the deal price, except as cross check to a DCF
valuation. In reaching this outcome, the court placed heavy weight on a comment made by
AOL’s CEO, shortly after the signing of the deal, in which he said he was “committed to
doing the deal with Verizon” and emphasized that he “gave the team at Verizon my word
that . . . this deal is going to happen.” Id. at *9. The court found that the comment “could
reasonably cause potential bidders to pause when combined with the deal protections here.”
Id. A trial court’s job is to make that type of decision and determine when the evidence
warrants a case-specific departure from a general rule.
The broader Delaware corpus supports the general principle that the package of
defensive measures found in the Merger Agreement in this case is sufficient to permit an
effective post-signing market check, even when matching rights are present. As noted,
commentators have perceived that under the Delaware Supreme Court’s recent appraisal
decisions, a sale process involving a publicly traded firm will function as a reliable
indicator of fair value as long as it would pass muster if reviewed under enhanced scrutiny
in a breach of fiduciary duty case. See Hamermesh & Wachter, supra, at 962, 982–83;
Korsmo & Myers, supra, at 269. Based on numerous trial court precedents, the suite of
deal protection measures in the Merger Agreement would not have supported a claim for
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breach of fiduciary duty.19 The suite of deal protections in the Merger Agreement compared
favorably with the deal protections in C & J Energy and PLX, which this decision has
discussed at length.
19
See, e.g., Dent v. Ramtron Int’l Corp., 2014 WL 2931180, at *8–10 (Del. Ch. June
30, 2014) (rejecting fiduciary challenge to “(1) a no-solicitation provision; (2) a standstill
provision; (3) a change in recommendation provision; (4) information rights for [the
acquirer]; and (5) a $5 million termination fee” where termination fee represented 4.5% of
equity value and change-of-recommendation provision included unlimited matching right);
In re BJ’s Wholesale Club, Inc. S’holders Litig., 2013 WL 396202, at *13 (Del. Ch. Jan.
31, 2013) (rejecting fiduciary challenge to a merger agreement with a no-shop provision,
matching and information rights, a termination fee representing 3.1% of deal value, and a
force-the-vote provision; observing that “under Delaware law, these deal protection
measures, individually or cumulatively, have routinely been upheld as reasonable”); In re
Novell, Inc. S’holder Litig., 2013 WL 322560, at *10 (Del. Ch. Jan. 3, 2013) (describing
“the no solicitation provision, the matching rights provision, and the termination fee” as
“customary and well within the range permitted under Delaware law” and observing that
“[t]he mere inclusion of such routine terms does not amount to a breach of fiduciary duty”);
In re Synthes, Inc. S'holder Litig., 50 A.3d 1022, 1049 (Del. Ch. 2012) (finding that a
termination fee of 3.05% of equity value, a no-solicitation provision with a fiduciary out
and matching rights, a force-the-vote provision, and a voting agreement that locked up at
least 33% of the company shares in favor of the merger were not unreasonable deal
protection devices); In re Answers Corp. S’holders Litig., 2011 WL 1366780, at *4 & n.47
(Del. Ch. Apr. 11, 2011) (describing “a termination fee plus expense reimbursement of
4.4% of the Proposed Transaction’s equity value, a no solicitation clause, a ‘no-talk’
provision limiting the Board’s ability to discuss an alternative transaction with an
unsolicited bidder, a matching rights provision, and a force-the-vote requirement” as
“standard merger terms” that “do not alone constitute breaches of fiduciary duty” (quoting
In re 3Com S’holders Litig., 2009 WL 5173804, at *7 (Del. Ch. Dec. 18, 2009))); In re
Atheros Commc’ns, Inc. S’holder Litig., 2011 WL 864928, at *7 n.61 (Del. Ch. Mar. 4,
2011) (same analysis for no-solicitation provision, matching right, and termination fee); In
re 3Com, 2009 WL 5173804, at *7 & n.37 (rejecting challenge to merger agreement with
a no-solicitation provision, matching rights, and a termination fee in excess of 4% of equity
value; describing provisions as having been “repeatedly” upheld by this court and
collecting authorities).
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The Aruba decision involved a similar suite of deal protections. The merger
agreement in that case “prohibited Aruba from soliciting competing offers and required the
Aruba Board to continue to support the merger, subject to a fiduciary out and an out for an
unsolicited superior proposal” and included a termination fee equal to 3% of the merger’s
equity value. Aruba Trial, 2018 WL 922139, at *21, *38. The matching rights were similar
too: HP had “an unlimited match right, with five days to match the first superior proposal
and two days to match any subsequent increase, and during the match period Aruba had to
negotiate exclusively and in good faith with HP.” Id. at *38 (footnote omitted). Viewing
the deal protections holistically, the Delaware Supreme Court found that potential buyers
had an open chance to bid, which supported the high court’s use of a deal-price-less-
synergies metric to establish fair value. See Aruba, 210 A.3d at 136.
The Delaware Supreme Court has explained that a post-signing market check is
effective as long as “interested bidders have a fair opportunity to present a higher-value
alternative, and the board has the flexibility to eschew the original transaction and accept
the higher-value deal.” C & J Energy, 107 A.3d at 1068. This description comports with
guidance from a frequently cited treatise, which identifies “critical aspects” of a merger
agreement that does not “preclude or impermissibly impede a post-signing market check.”
1 Lou R. Kling & Eileen T. Nugent, Negotiated Acquisitions of Companies, Subsidiaries
and Divisions § 4.04[6][b], at 4-89 to -90 (1992 & Supp. 2019).
First, the economics of the executed agreement must be such that it does not
unduly impede the ability of third parties to make competing bids. Types of
arrangements that might raise questions in this regard include asset lock-ups,
stock lock-ups, no-shops, force-the-vote provisions, and termination fees.
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The operative word is “unduly;” the impact will vary depending upon the
actual type of device involved and its specific terms.
***
Second, the target should be permitted to disclose confidential information
to any third party who has on its own (i.e., not been solicited) “shown up” in
the sense that it has submitted a proposal or, at a minimum, an indication of
interest which is, or which the target believes is, reasonably likely to lead to
(and who is capable of consummating) a higher competing bid. In this regard,
the target should also be able to negotiate with such third parties. This
removes any informational advantage that the initial (anointed) purchaser
may have.
***
Finally, the target board of directors should have the contractual right,
without violating the acquisition agreement, to withdraw or modify its
recommendation to shareholders with respect to the transaction provided for
in the executed acquisition agreement.
Id. at 4-90 to -94.1 (footnotes omitted).
Using this framework, the deal protections did not preclude or impermissibly
impede a post-signing market check. For starters, any party could submit a bona fide
written Acquisition Proposal. If the Board determined that the Acquisition Proposal
“constitutes, or could reasonably be expected to result in, a Superior Proposal” and entered
into an “Acceptable Confidentiality Agreement” with the party making the proposal, then
the Board could “engage in negotiations or discussions with, or furnish any information
to,” the party making the Acquisition Proposal. JX 545, Annex A, § 6.2.2. Additional
requirements included that the Company notify Sibanye within twenty-four hours of its
determination, furnish Sibanye “substantially concurrently” with any information provided
to the third party, and not share any of Sibanye’s confidential information unless required
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by law. Id. The Company also had to notify Sibanye of the terms of the Acquisition
Proposal and the identity of the third party making it, then keep Sibanye informed of any
developments on a reasonably prompt basis. Id. § 6.2.3.
After that point, if the Board determined that the Acquisition Proposal constituted a
Superior Proposal and that its fiduciary duties required it, then the Board could change its
recommendation in favor of the Merger, provided that before doing so, the Board gave
Sibanye five days in which to match the Superior Proposal or otherwise offer changes to
the Merger Agreement to avoid the change of recommendation. The Board could also
withdraw or modify its recommendation for an Intervening Event, again conditioned on
giving Sibanye five days in which to propose changes to the Merger Agreement to avoid
the change of recommendation. If the stockholders voted down the deal, then Stillwater
could terminate the Merger Agreement, subject only to paying a termination fee and
expense reimbursement equal to 1.2% of the Merger’s equity value.
The post-signing market check began on December 9, 2016, when Sibanye and the
Company announced the Merger. It ended on April 26, 2017, when the Company’s
stockholders approved the Merger Agreement. The resulting passive market check lasted
138 days, close to the 153 days in C & J Energy and far longer than many of the passive,
post-signing market checks that the Delaware courts have approved. See App.
During the post-singing market check, no one bid. The failure of any other party to
come forward provides significant evidence of fairness, because “[f]air value entails at
minimum a price some buyer is willing to pay—not a price at which no class of buyers in
the market would pay.” Dell, 177 A.3d at 29; see id. at 32, 34. The absence of a higher bid
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indicates “that the deal market was already robust and that a topping bid involved a serious
risk of overpayment,” which in turn “suggests the price is already at a level that is fair.” Id.
at 33. As in Aruba, “[i]t cannot be that an open chance for buyers to bid signals a market
failure simply because buyers do not believe the asset on sale is sufficiently valuable for
them to engage in a bidding contest against each other.” Aruba, 210 A.3d at 136. Instead it
suggests that “the target’s value is not sufficiently enticing to buyers to engender a bidding
war above the winning price.” Id.
c. The Stockholder Vote
In their last challenge to the post-signing phase, the petitioners assert that the
stockholders approved the Merger based on incomplete and misleading information. They
devote only two pages in their opening brief to this argument, the bulk of which describes
the legal principles that apply in fiduciary duty cases. See PTOB at 53–54 (citing Morrison
v. Berry, 191 A.3d 268, 282–83 (Del. 2018); and Corwin v. KKR Fin. Hldgs., LLC, 125
A.3d 304, 312 (Del. 2015)). The factual description of their disclosure theory appears in
just three sentences:
Stillwater’s stockholders were told McMullen led the sale process, but they
were never informed that he was preparing to leave the Company or the scope
of his outside business ventures. In addition, Stillwater stockholders were
told that Wadman left the Company prior to closing, but they were never
informed of the context of his departure or his “noisy exit.” Stillwater’s
stockholders were also provided no information regarding the Company’s
exploration zones.
PTOB at 53–54. They devote the same amount of space to this theory in their reply brief,
although the text extends over three pages. Dkt. 228 at 26–28. In their reply brief, they
argue that stockholders should have been told that Wadman raised concerns about
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McMullen’s conflicts of interest and “his manner of soliciting interest from third parties,”
and that Wadman was “retaliated against for doing so.” Id. at 27. They also argue that
stockholders should have been told that McMullen “was in violation of his 2016
employment agreement” while running the sale process because of his roles with Nevada
Iron and New Chris. Id.
The petitioners’ argument about Stillwater’s exploration zones does not appear to
hold up under their own understanding of the law. The petitioners elsewhere argued
persuasively that under Industry Guide 7, promulgated by the Securities and Exchange
Commission, Stillwater was not permitted to disclose information about the value of the
Company’s exploration zones. See, infra, Pt. II.B.3.a.
The disclosure theories about McMullen and Wadman would likely have some merit
if the petitioners had done more to articulate them, support them with case law, and explain
their relationship to a determination of fair value. Presumably the petitioners’ believe that
if stockholders had been told that McMullen was pursuing a sale in part because of his
personal interest in exiting the Company and that Wadman resigned because of disputes
over how McMullen handled the sale process, then some stockholders might have
questioned whether the deal price reflected fair value.
These contentions would have to overcome the doctrine against self-flagellation.
See, e.g., Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 143 (Del. 1997). That
said, the proxy statement should have disclosed McMullen’s interest in retiring, his roles
with GT Gold and New Chris, and their implications for his employment agreement.
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Stockholders also should have been told that Wadman resigned because of disputes with
senior management about the conduct of the sale process.
Although I have tried to give the petitioners the benefit of the doubt by crediting
their conclusory assertions in this fashion, I am not convinced that their arguments are
sufficient to undermine the stockholder vote as an expression of the preference of a
supermajority of Stillwater’s stockholders for a sale rather than having the Company
continue as a standalone entity. The Delaware Supreme Court has explained that “[t]he
issue in an appraisal is not whether a negotiator has extracted the highest possible bid.
Rather, the key inquiry is whether the dissenters got fair value and were not exploited.”
Dell, 177 A.3d at 33. The disclosures that the petitioners say the Company should have
made could have affected stockholders’ views about whether their negotiators had
extracted the highest possible bid. If stockholders had been provided with information
about McMullen’s interests and Wadman’s withdrawal, then perhaps some stockholders
would have inferred that a different negotiator might have pushed for more from Sibanye
or worked harder during the pre-signing phase to find a bidder who could have paid a
higher price (an inference undercut by the absence of any topping bid during the post-
signing phase). They would not have had any reason to revise their assessment of the
Company’s prospects as a standalone entity or to vote down the Merger in the belief that
the Company was more valuable as a going concern in its operative reality as a widely
held, publicly traded firm.
Because of the disclosure issues, this decision does not give heavy weight to the
stockholder vote. Nevertheless, the vote remains a positive factor when evaluating whether
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the deal price reflected fair value. If stockholders believed that the Company was worth
more, they could have voted down the Merger and retained their proportionate share of the
Company as a going concern. By approving the Merger at $18.00 per share, they evidenced
their belief that the deal price provided fair value and was not exploitive.
5. The Sale Process Was Reliable.
Sibanye proved by a preponderance of the evidence that the sale process made the
deal price a persuasive indicator of fair value. The sale process was not perfect, and the
petitioners highlighted its flaws, but the facts of this case, when viewed as a whole,
compare favorably or are on par with the facts in C & J Energy, PLX, DFC, Dell, and
Aruba.
The sale process that led to the Merger bore objective indicia of fairness that
rendered the deal price a reliable indicator of fair value. To reiterate, it was an arm’s-length
transaction. It was approved by an unconflicted Board and by Stillwater’s stockholders.
And it resulted from adversarial price negotiations between Stillwater and Sibanye. Most
significantly, no bidders emerged during the post-signing phase, despite a Merger
Agreement that contained a suite of deal protections that would pass muster under
enhanced scrutiny.
The petitioners pointed to problems during the early phases of the sale process
before the Board began exercising serious oversight and before BAML was retained. Those
flaws are factors to consider, but they do not undermine the reliability of the sale price
given what happened later. BAML’s pre-signing canvass was a positive factor. The
negotiations with Sibanye were also a positive factor. And the process culminated in an
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effective, albeit passive, post-signing market check. If Stillwater had pursued a single-
bidder strategy and only engaged with Sibanye, then the terms of the Merger Agreement
would have facilitated a sufficiently reliable post-signing market check to validate the deal
price. Stillwater did more than what would have been sufficient under a single-bidder
scenario.
It is theoretically possible that a more thorough pre-signing process or more
vigorous negotiations might have generated a higher transaction price for Stillwater’s
stockholders, but the issue in an appraisal “is not whether a negotiator has extracted the
highest possible bid.” Dell, 177 A.3d at 33.
Capitalism is rough and ready, and the purpose of an appraisal is not to make
sure that the petitioners get the highest conceivable value that might have
been procedure had every domino fallen out of the company’s way; rather, it
is to make sure that they receive fair compensation for their shares in the
sense that it reflects what they deserve to receive based on what would fairly
be given to them in an arm’s-length transaction.
DFC, 172 A.3d at 370–71. “[T]he key inquiry is whether the dissenters got fair value and
were not exploited.” Dell, 177 A.3d at 33.
The Merger in this case was rough and ready. McMullen and the Board did not
adhere to the best practices and transactional niceties that an advisor steeped in Delaware
decisions would recommend. Nevertheless, given the arm’s-length nature of the Merger,
the premium over market, and the substance of what took place during the sale process, it
is not possible to say that an award at the deal price would result in the petitioners being
exploited.
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6. The Adjustment For Value Arising From The Merger
Section 262 provides that “the Court shall determine the fair value of the shares
exclusive of any element of value arising from the accomplishment or expectation of the
merger or consolidation . . . .” 8 Del. C. § 262(h). “[I]t is widely assumed that the sale price
in many M&A deals includes a portion of the buyer’s expected synergy gains, which is
part of the premium the winning buyer must pay to prevail and obtain control.” DFC, 172
A.3d at 371. “In an arm’s-length, synergistic transaction, the deal price generally will
exceed fair value because target fiduciaries bargain for a premium that includes . . . a share
of the anticipated synergies . . . .” Olson v. ev3, Inc., 2011 WL 704409, at *10 (Del. Ch.
Feb. 21, 2011). “[S]ection 262(h) requires that the Court of Chancery discern the going
concern value of the company irrespective of the synergies involved in a merger.” M.P.M.
Enters., 731 A.2d at 797. To derive an estimate of fair value, the court must exclude “any
synergies or other value expected from the merger giving rise to the appraisal proceeding
itself . . . .” Golden Telecom Trial, 993 A.2d at 507. This means the trial court “must
exclude . . . the amount of any value that the selling company’s shareholders would receive
because a buyer intends to operate the subject company, not as a stand-alone going concern,
but as part of a larger enterprise, from which synergistic gains can be extracted.” Aruba,
210 A.3d at 133 (internal quotation marks omitted).
Sibanye’s valuation expert was Mark Zmijewski, an emeritus professor of finance
at the University of Chicago and a consultant at Charles River Associates. Zmijewski
opined that the evidence he reviewed did “not indicate that the Transaction resulted in
quantifiable synergies.” JX 652 ¶ 66 [hereinafter Zmijewski Rep.]; see Zmijewski Tr. 1146.
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Sibanye told its stockholders that the price did not reflect any synergies. JX 421 at ‘224.
McMullen testified at trial that he did not believe there were any synergies arising from the
Merger. McMullen Tr. 801. There is accordingly no reason to exclude any value from the
deal price based on synergies.
In this proceeding, Sibanye argued that despite the absence of quantifiable cost
synergies or revenue synergies, it willingly paid more than fair value for Stillwater,
resulting in a portion of the consideration reflecting value “arising from the
accomplishment or expectation of the merger or consolidation . . . .” 8 Del. C. § 262(h). In
its opening brief, Sibanye argued that it paid a premium for two strategic reasons: (i) to
facilitate entry into the United States and (ii) to expand its share of the PGM market.
Sibanye also argued that it could pay a premium in the Merger because after the Merger, it
could obtain a better rating on its debt. See also Zmijewski Tr. 1120–22; JX 397 at ‘452;
JX 498 at 20; JX 486 at 1; Rosen Tr. 407–08. Each of these reasons identifies a valuable
aspect of Stillwater based on its operative reality as a going concern. Stillwater was the
only PGM producer located in the United States, and it generated significant cash flow.
None of these features represented a source of value “arising from the accomplishment or
expectation of the merger or consolidation.”
Sibanye failed to meet its burden of proof to establish a quantifiable amount that the
court should deduct from the deal price. This decision does not make any downward
adjustment to the deal price to compensate for combinatorial value.
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7. The Adjustment For Changes In Value Between Signing And
Closing
Under Section 262, the time for determining the value of a dissenter’s shares is the
point just before the merger closes. See Appraisal Rights, supra, at A-33. The deal price
provides a data point for the value of the company as of the date of signing, but the
valuation date for an appraisal is the date of closing. Consequently, if the value of the
corporation changes between the signing of the merger and the closing, the fair value
determination must be measured by the “operative reality” of the corporation at the
effective time of the merger. Technicolor II, 684 A.2d at 298.
In a merger involving a widely held, publicly traded company, some gap between
signing and closing will usually exist. The customary need to prepare and disseminate
disclosure documents, then complete a first-step tender offer or obtain a stockholder vote
will typically result in several months elapsing between signing and closing. See Robert T.
Miller, The Economics of Deal Risk: Allocating Risk Through MAC Clauses in Business
Combination Agreements, 50 Wm. & Mary L. Rev. 2007, 2018–19 (2009) (discussing
timelines for various transaction structures). If regulatory approvals are required, the
temporal gap can expand. Id. at 2020–23. During this period, the value of the company
could rise or fall.
Despite the customary existence of a temporal gap between signing and closing,
Delaware appraisal decisions have typically not made adjustments to the deal price to
reflect a valuation change during the post-signing period. In Union Illinois, this court relied
for the first time on a deal-price-less-synergies metric when determining the fair value of
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a privately held bank (UFG). See Union Ill., 847 A.2d at 343. Six months elapsed between
signing and closing, and the petitioners objected to using the deal price because of the
temporal gap. The trial court described this argument as a “quibble” and as “not a forceful
objection,” because “[t]he negotiation of merger terms always and necessarily precedes
consummation.” Id. at 358. Turning to the facts of the case, the court found that the
petitioners were not able “to cite any rational explanatory factor that indicates why an
investor would perceive UFG’s future more optimistically on New Year’s Eve 2001 than
they did on the preceding Fourth of July.” Id. UFG had experienced “a modest upward
adjustment in its [net income margin] in the second half of 2001,” but the court saw no
evidence that the increase was sustainable or would alleviate UFG’s problems complying
with capital adequacy standards. Id. Although UFG had refinanced its debt, the loan came
from the acquirer, and UFG was not in a position to either service that debt or refinance it
completing the merger. Id. The court concluded that “[c]onsidered fairly, the record does
not support the idea that UFG was more valuable at the end of 2001 than it was when the
Merger Agreement was signed.” Id.
In PetSmart, this court awarded fair value based on the deal price in a case involving
a publicly traded firm. See In re PetSmart, Inc., 2017 WL 2303599, at *2 (Del. Ch. May
26, 2017). The court regarded the petitioners’ argument that the merger price “was stale by
the time of closing” as “at best speculative.” Id. at *31. Citing Union Illinois, the court
explained that “[m]ergers are consummated after the consideration is set. That temporal
separation, however, does not in and of itself suggest that the merger consideration does
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not accurately reflect the company’s going concern value as of the closing date.” Id. The
court then turned to the petitioners’ case-specific arguments:
Petitioners would have me conclude that the Merger Price was stale because,
in the gap between signing and closing, PetSmart’s fortunes took a
miraculous turn for the better. While the record indicates that the Company
did enjoy some favorable results in Q4 2014, such as an uptick in comparable
store sales growth, I am not convinced that these short-term improvements
were indicative of a long-term trend. In fact, all testimony at trial was to the
contrary—the Board, as well as Teffner, believed that the Q4 results were
temporary and provided no basis to alter their view of the Company’s long-
term prospects. These perceptions were born out in Q1 2015 (when the
Merger closed) during which PetSmart’s comparable store sales dropped to
1.7%. At year end, PetSmart reported comparable store sales growth of 0.9%,
a 40% miss from the Management Projections in just the first projection year.
Id. (footnotes omitted). The petitioners in PetSmart thus failed to carry their burden of
proving that the value of the company had changed.
Most recently, in Columbia, this court awarded fair value based on the deal price in
another case involving a publicly traded firm. See In re Appraisal of Columbia Pipeline
Gp., Inc., 2019 WL 3778370, at *1 (Del. Ch. Aug. 12, 2019). The company developed,
owned, and operated natural gas pipelines, storage facilities, and other midstream assets,
and it had a business plan that called for raising large amounts of equity financing through
a master limited partnership (“MLP”). Before agreeing to be acquired, the company had
been unable to use the MLP structure to raise capital because of adverse trends in the MLP
financing market. The merger agreement was signed on March 17, 2016, and the
transaction closed on July 1, 2016. The petitioners argued that in the interim, the market
for MLP equity had improved and prices for energy commodities had increased. See id. at
*45. The court found that the petitioners had not carried their burden of proving how to
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quantify the alleged improvements in the form of a higher deal price. Id. The court also
found that the improvement in two MLP indices did not persuasively support the claim that
the company would have been able to raise capital efficiently through its MLP. The court
similarly rejected any valuation increase based on the prices of energy related commodities,
because everyone agreed that the company’s value did not depend on commodities. As a
midstream company, it did not own, buy, or sell the commodities that it transported or
stored. Id.
The one arguable exception is Lender Processing, where this court awarded fair
value based on the value of the deal price at closing, rather than at signing, where the deal
consideration consisted of 50% cash and 50% stock. See Lender Processing, 2016 WL
7324170, at *1, *8. Because of the stock component, the value of the merger consideration
increased from $33.25 per share at signing to $37.14 per share at closing. Id. The petitioners
pointed to the existence of the temporal gap as a reason not to rely on the deal price or other
market-based metrics associated with the signing of the deal. The respondent pointed to
the absence of a topping bid as validating the deal price. After reviewing the evidence, the
court concluded that the final merger consideration “was a reliable indicator of fair value
as of the closing” and that “because of synergies and a post-signing decline in the
Company’s performance, the fair value of the Company as of the closing date did not
exceed” that amount. Id. at *23. The acquirer’s expert had not tried to quantify the
synergies or the amount of the post-signing valuation decline, and the court concluded that
the respondent had failed to carry its burden of proof on those issues. Id. at *33. By using
the deal price as measured at closing rather than at signing, the Lender Processing decision
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accounted for changes in value between signing and closing, but without making an explicit
adjustment.
All four precedents considered whether the deal-price metric needed to be adjusted
to reflect changes in value between signing and closing. The decisions thus indicate that an
adjustment to the deal price can be warranted. But the decisions also show that the
proponent of the adjustment must carry its burden by identifying a persuasive reason for
the change and proving the amount.
At a minimum, it would seem to make sense to adjust the deal price for inflation.
When the parties agreed to the deal price on December 8, 2016, they reached agreement
on a price measured in dollars valued as of that date. Between that date and the closing on
May 4, 2017, the purchasing power of those dollars declined. If Stillwater had precisely
the same value in the abstract on May 4, 2017, as it did on December 8, 2016, it would still
be necessary to adjust the number of dollars used to express that value to reflect the
intervening decline in what the value of a dollar represented. Adjusting the deal price for
inflation would achieve this result.20
20
The pop-culture illustration of this principle is J. Wellington Wimpy’s offer to
“gladly pay you Tuesday for a hamburger today.” See J. Wellington Wimpy, Wikipedia,
https://en.wikipedia.org/wiki/J._Wellington_Wimpy (last visited Aug. 20, 2019). Setting
aside credit risk, dollars paid next Tuesday are worth less than dollars paid today, so the
same price paid next Tuesday is a pleasant deal for Wimpy. The same is true for Sibanye
in an appraisal. Valuing Stillwater at $18.00 per share based on an agreement reached on
December 8, 2016, then using that figure to determine value as of May 4, 2017, lets Sibanye
use December’s dollars for a valuation in May. The statutory interest award is measured
from closing, so that aspect of the appraisal remedy does not pick up the decline in the
purchasing power of dollars used to measure the deal-price metric. In this respect, the
petitioners are differently situated than stockholders who did not pursue their appraisal
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As their valuation expert, the petitioners relied on Howard Rosen, a senior managing
director at FTI Consulting. When adjusting the unaffected trading price, Rosen used an
inflation rate of 2% per annum to account for the decrease in the value of dollars between
signing and closing, then made further adjustments. See JX 728 ¶¶ 5.19, 5.25 to 5.28. A
similar inflation-based adjustment could be made to the deal price, generating a value on
the closing date of $18.14 per share, but no one argued for it.
The nature of Stillwater’s business makes this case a plausible one for an upward
adjustment that goes beyond inflation. Stillwater was a mining concern that primarily
produced palladium and platinum. Stillwater’s cash flows depended on the prices of those
metals, so when the prices of those metals increased or decreased materially, the value of
the Company increased or decreased materially as well. The Company’s annual report for
2016 explained the relationship as follows:
The Company’s earnings and cash flows are sensitive to changes in PGM
prices – based on 2016 revenue and costs, a 1% (or approximately $7 per
ounce) change in the Company’s average combined realized price for
palladium and platinum would result in approximately a $7.1 million change
to before-tax net income and a change to cash flows from operations of
approximately $3.9 million.
rights. They accepted the $18.00 per share and received it, without interest, shortly after
May 4, 2017, once the merger consideration payouts were processed through the clearing
system. The appraisal petitioners did not accept that outcome. They opted for appraisal and
sought a determination of Stillwater’s fair value as of May 4, 2017. Sibanye can argue
legitimately that the deal price of $18.00 per share provides the best evidence of fair value,
but that is a price calculated in December 2016 dollars, not May 2017 dollars.
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JX 728 ¶ 5.21 (quoting Stillwater Mining Company, Annual Report (Form 10-K) (Feb. 16,
2017)). The Merger was signed on December 9, 2016. The Merger closed on May 4, 2017.
Between signing and closing, the prices of palladium and platinum increased materially,
with a direct effect on Stillwater’s value. Id. ¶ 5.20.
Rosen determined that the sales-weighted price of Stillwater’s commodities
increased by 5.9% between signing and closing. Using the formula in Stillwater’s annual
report, Rosen calculated the valuation impact of the additional cash flow as ranging from
$248 million (using a 11.2% WACC) to $285 million (using a 10% WACC), which equated
to an increase of between $2.00 to $2.30 per share. Id. He regarded his estimate as
conservative because he kept production constant and did not account for new sources,
such as Blitz, coming on line. Id. ¶¶ 5.23 to 5.25. Rosen used this figure to make
adjustments to the unaffected trading price. In theory, he could have made similar
adjustments to the merger price.
As this discussion indicates, the petitioners never argued for an adjustment to the
deal price based on an increase in value between signing and closing. As discussed in the
next section, Sibanye argued that the court could make an adjustment to the unaffected
trading price and use the adjusted trading price as an indicator of fair value. The petitioners
countered that argument by proposing an adjustment of their own that resulted in the
adjusted trading price exceeding the deal price. Those arguments addressed the trading
price, not the deal price. There could be considerable conceptual overlap between the
approaches, but there could also be significant differences.
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A petitioner seeking to make valuation-based adjustments to a reliable deal price
also would need to confront the implications of the post-signing market check. As in
Lender Processing, a respondent in an appraisal case could easily argue that if a company’s
value increased between signing and closing, then a competing bidder would have
perceived that value and offered more than the deal price. The respondent would argue that
if no one bid, then that fact would call for rejecting the petitioners’ evidence of a valuation
increase. There are several possible responses to this argument.
One response is a relatively small point from a valuation perspective: the
termination fee. Using this case as an example, if a topping bidder made a Superior
Proposal, and if the Board changed its recommendation, and if the stockholders voted down
the Merger, then Stillwater would have to pay Sibanye a termination fee of $16.5 million
plus reimbursement of Sibanye’s expenses up to $10 million, for a total payment of $26.5
million or 21.6 cents per share. Those amounts would reduce Stillwater’s value to the
acquirer, making the acquirer neutral as to any increase in Stillwater’s value that did not
clear that level. The point of indifference is actually higher, because a competing bidder
would incur expenses of its own to make the competing bid. Ignoring those incremental
expenses and focusing only on the sell-side fees, Stillwater’s value could increase by up to
$26.5 million without a rational acquirer having any reason to bid. The absence of a topping
bid could not rule out a valuation change of this magnitude, but an award above the deal
price that fell within the range permitted by the termination fee would likely be cold
comfort to the typical appraisal petitioner.
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A more significant counterargument would focus on the timing of the valuation
change. A premise that underlies the effectiveness of the post-signing market check is that
other bidders learn that the target is for sale when the deal is announced, can examine the
target for themselves, and if they value the target more highly (taking into account
synergies and other sources of bidder-specific value), then they can intervene. Under this
theoretical framework, competing bidders can begin work shortly after the announcement,
giving them the full timeline between the signing and the vote in which to intervene. When
the potential overbid would be induced by a change in the value of the target company, the
time for the competing bidder to act does not begin with the announcement of the deal, but
rather when the bidder learns of the valuation change. The delayed signal shortens the
amount of time for the bidder to intervene. As the date of the stockholder vote approaches,
it becomes less likely (all else equal) that a bidder will intervene, if only because less time
is available in which to do so. Because of this effect, a failure to bid during the post-signing
phase provides a much noisier signal about changes in the target’s value than it does about
the absence of higher-valuing bidders. In this case, the increase in value that resulted from
changes in the spot price did not really begin until February 2017, two months after signing.
It dropped in March, then picked up again in April, when the stockholder vote took place.
A third counterargument would examine the possibility of changes in value after the
stockholder vote but before closing. As this case illustrates, a competing bidder’s only
meaningful opportunity to intervene is before the stockholders approve the transaction. In
a case where closing is delayed significantly after the stockholder vote because of issues
such as the need for regulatory approvals, the post-vote temporal gap would matter more.
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Perhaps the most significant problem with relying on a post-signing market check
to rule out an increase in the target’s standalone value is that the resulting valuation
improvement would be available to any bidder. The competition for the incremental value
would likely operate as a common value auction, defined as an auction in which “every
bidder has the same value for the auctioned object.” Peter Cramton & Alan Schwartz,
Using Auction Theory to Inform Takeover Regulation, 75 L. Econ. & Org. 27, 28–29
(1991). In a competition for that incremental value, the incumbent bidder’s matching right
would loom large. To make it worthwhile to bid, a potential deal jumper would not only
have to perceive that the value of the target had increased above the level set by the deal
price plus the termination fee and fee reimbursement plus the deal jumper’s likely
transaction costs, but also perceive a pathway to success that was sufficiently realistic to
warrant becoming involved, taking into account the potential reputational damage that
could result from being unsuccessful. Unless the competitor had a unique reason to value
the increased cash flows more highly than the incumbent, the competitor should expect the
incumbent to match any incremental bid.21 In a case like this one, where the valuation
21
See Fernán Restrepo & Guhan Subramanian, The New Look of Deal Protection,
69 Stan. L. Rev. 1013, 1058–63 (2017) (analyzing implications of matching rights); Brian
JM Quinn, Bulletproof: Mandatory Rules for Deal Protection, 32 J. Corp. L. 865, 870
(2007) (analyzing matching rights as the functional equivalent of a right of first refusal and
explaining that “[t]he presence of rights of first refusal can be a strong deterrent against
subsequent bids” because “[s]uccess under these circumstances may involve paying too
much and suffering the ‘winner’s curse’”); see also Marcel Kahan & Rangarajan K.
Sundaram, First-Purchase Rights: Rights of First Refusal and Rights of First Offer, 12 Am.
L. & Econ. Rev. 331, 331 (2012) (finding “that a right of first refusal transfers value from
other buyers to the right-holder, but may also force the seller to make suboptimal offers”);
Frank Aquila & Melissa Sawyer, Diary of a Wary Market: 2010 in Review and What to
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increment would result from improved commodity prices that would be available to all
bidders, a strong argument can be made that a competitor would not think that it had the
ability to outbid the incumbent and would not try.
The respondent in an appraisal proceeding could make similar arguments about the
stockholder vote. If the reasons for the valuation increase were public, and stockholders
still voted for the deal, then their behavior would provide contrary market evidence
undermining the claim of increased value. In this case, the increase in commodity prices
was publicly available information, and Stillwater’s stockholders had the ability to vote
down the deal if they thought the increased value from improving commodity prices
changed matters. One obvious response to this argument is that to vote down the deal,
stockholders would have had to prefer returning to Stillwater in its operative reality as a
widely traded firm, where their only the options for liquidity were either to sell into the
market or hold out for a higher-priced takeover down the road. Given these choices,
stockholders might well have preferred the surer option of the deal price, even if they
believed that the Company’s value had increased between signing and closing such that the
deal price no longer reflected fair value.
Expect in 2011, 12 M & A Law. Nov.-Dec. 2010, at 1 (“Match rights can result in the first
bidder ‘nickel bidding’ to match an interloper’s offer, with repetitive rounds of incremental
increases in the offer price. . . . [M]atch rights are just one more factor that may dissuade a
potential competing bidder from stepping in the middle of an already-announced
transaction.”); David I. Walker, Rethinking Rights of First Refusal, 5 Stan. J.L. Bus. & Fin.
1, 20–21 (1999) (discussing how a right of first refusal affects bidders).
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As this discussion shows, whether to adjust the deal price for an increase in value
between signing and closing presents numerous difficult questions. In this case, the
petitioners did not argue for an adjustment to the deal price, and so the parties did not have
the opportunity to address these interesting issues. The court will not take them up at this
late stage in the proceeding. The petitioners accordingly failed to prove that the deal price
should be adjusted upward to reflect a change in value between signing and closing. See
Columbia, 2019 WL 3778370, at *45. This decision finds that the deal price of $18.00 per
share provides reliable evidence of fair value.
B. The Adjusted Trading Price
Sibanye contended that Stillwater’s adjusted trading price is a reliable indicator of
the fair value of the Company. Sibanye generates the adjusted trading price by making
adjustments to the unaffected trading price, so the reliability of the adjusted trading price
depends on the reliability of the unaffected trading price. As the proponent of using this
valuation indicator, Sibanye bore the burden of establishing its reliability and
persuasiveness.
Assessing the reliability of the trading price for Stillwater’s common stock means
getting “deep into the weeds of economics and corporate finance.” In re Appraisal of
Jarden Corp., 2019 WL 3244085, at *1 (Del. Ch. July 19, 2019). The thicket of market
efficiency is one such place where “law-trained judges should not go without the guidance
of experts trained in these disciplines.” Id. In this case, both sides retained financial experts
who tried to lead the court through the undergrowth. Zmijewski addressed these issues for
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Sibanye. Israel Shaked, a professor of economics and finance at Boston University,
addressed these issues for petitioners.
1. Informational Efficiency and Fundamental-Value Efficiency
The experts agreed on the difference between informational efficiency and
fundamental-value efficiency. See Zmijewski Tr. 1087; JX 651 ¶¶ 13–27, 33–41
[hereinafter Shaked Rep.]. “[I]nformational Efficiency . . . is concerned with how rapidly
security prices reflect or impound new information that arrives to the market.” Shaked Rep.
¶ 33 (quoting Alex Frino et al., Introduction to Corporate Finance 305 (5th ed. 2013)).
There are three recognized types of informational efficiency:
 Weak: a company’s stock price reflects all historical price information.
 Semi-Strong: a company’s stock price reflects all publicly available information.
 Strong: a company’s stock price reflects both publicly available information and
inside information.
No one claimed that the market for Stillwater’s common stock could be informationally
efficient in the strong sense. Everyone focused on whether the market for Stillwater’s
common stock was informationally efficient in the semi-strong sense. All of the references
in this decision to informational efficiency as it relates to Stillwater’s common stock
therefore contemplate informational efficiency in the semi-strong sense.
“While informational efficiency is a function of speed and how quickly new
material information is incorporated into a stock’s price, fundamental value efficiency is
an incremental function of how accurately a market in which a stock trades discretely
incorporates new material information.” Shaked Rep. ¶ 42. The price of a security in a
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market that is fundamental-value efficient should reflect its intrinsic value, defined as “the
present value of all cash payments to the investor in the stock, including dividends as well
as the proceeds from the ultimate sale of the stock, discounted at the appropriate risk
adjusted rate.” Shaked Rep. ¶ 40. (internal quotation marks omitted). In other words, a
stock trading in a market that is fundamental-value efficient is one in which the trading
price “fully reflects all estimates, guidance and other public, material information that
portray the risks and returns of a stock accurately, including all key drivers.” Id. ¶ 41.
The experts agreed that it is impossible to observe whether a stock trades in a market
that is fundamental-value efficient. See Zmijewski Tr. 1088, 1153–54; Shaked Report ¶ 41.
According to the petitioners, this concession means that Sibanye cannot meet its burden of
proof.
While theoretically valid, the petitioners’ argument goes too far. Whether called
fundamental value, true value, intrinsic value, or fair value, the really-real value of
something is always an unobservable concept. No valuation methodology provides direct
access to it. Fundamental value is like a Platonic form, and the various valuation
methodologies only cutouts casting shadows on the wall of the cave. The real issue is not
whether a particular method generates a shadow (they all do), but rather whether the
shadow is more or less distinct than what other methods produce.
Reliance on the trading price of a widely held stock is generally accepted in the
financial community, and the trading price or metrics derived from it are regularly used to
estimate the value of a publicly held firm based on its operative reality in that configuration.
For purposes of determining fair value in an appraisal proceeding, therefore, the trading
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price has a lot going for it.22 Like democracy, the trading price may be imperfect, but it
often will serve better than the other metrics that have been tried. Cf. Winston Churchill,
Churchill by Himself 574 (Richard Langworth ed., 2008). The petitioners’ admittedly valid
objection that it is impossible to prove that a trading price reflects fundamental value is
thus not one that automatically disqualifies the use of the trading price as a valuation
indicator in an appraisal.
In this regard, it is important to recognize that informational efficiency and
fundamental-value efficiency are not all-or-nothing concepts. See Bradford Cornell & John
Haut, How Efficient Is Sufficient: Applying the Concept of Market Efficiency in Litigation,
22
See, e.g., Richard A. Booth, Minority Discounts and Control Premiums in
Appraisal Proceedings, 57 Bus. Law. 127, 151 n.130 (2001) (“[M]arket price should
ordinarily equal going concern value if the market is efficient.”); William J. Carney &
Mark Heimendinger, Appraising the Nonexistent: The Delaware Court’s Struggle with
Control Premiums, 152 U. Pa. L. Rev. 845, 847–48, 857–58 (2003) (“The basic conclusion
of the Efficient Capital Markets Hypothesis (ECMH) is that market values of companies’
shares traded in competitive and open markets are unbiased estimates of the value of the
equity of such firms.”); id. at 879 (noting that the appraisal statute requires consideration
of all relevant factors and stating that “in an efficient market, absent information about
some market failure, market price is the only relevant factor”); Lawrence A. Hamermesh
& Michael L. Wachter, The Short and Puzzling Life of the “Implicit Minority Discount” in
Delaware Appraisal Law, 156 U. Pa. L. Rev. 1, 52 (2007) (“Take the case of a publicly
traded company that has no controller. Efficient market theory states that the shares of this
company trade at the pro rata value of the corporation as a going concern.”); id. at 60 (“As
a matter of generally accepted financial theory . . . , share prices in liquid and informed
markets do generally represent th[e] going concern value . . . .”); see also Lawrence A.
Hamermesh & Michael L. Wachter, Rationalizing Appraisal Standards in Compulsory
Buyouts, 50 B.C. L. Rev. 1021, 1033–34 (2009) (positing trading prices should not be used
to determine fair value if there is either no public market price at all, if the shares are illiquid
or thinly traded, or if there is a controlling stockholder, implying that outside of these
scenarios, “because financial markets are efficient, one can simply use the market value of
the shares”).
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74 Bus. Law. 417, 418 (2019). A stock trading in a national market like the New York
Stock Exchange will have more attributes of informational efficiency than a stock trading
over the counter, but a party might be able to show that the particular over-the-counter
market had sufficient attributes to regard the trading price as informationally efficient. The
attributes of the over-the-counter market are likely to be consistent with a greater degree
of informational efficiency than thinner and chunkier markets, such as markets for houses
or entire companies.
Fundamental-value efficiency is likewise a matter of degree. A market could be
precisely fundamental-value efficient in that it accurately prices the asset at exactly its true
value. Or it might be nearly fundamental-value efficient in that it accurately prices the asset
within some percentage, say plus or minus 3%, of its true value. Or it might be
approximately fundamental-value efficient in that it accurately prices the asset within some
wider range of its true value, such as a factor of two. See id. at 422 (“We might define an
efficient market as one in which price is within a factor of 2 of value, i.e., the price is more
than half of value and less than twice value.” (quoting Fischer Black, Noise, 41 J. Fin. 553
(1986))).
Although it is impossible to test for fundamental value, there are indicators of
fundamental-value efficiency. One indicator is directional consistency, in which the market
for a security reacts positively to new material information that is positive, and negatively
to new material information that is negative. See Shaked Rep. ¶¶ 43–44. Another indicator
is proportionality, which examines not only whether the direction of the reaction to new
material information is consistent with its content, but also whether the extent of the
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reaction corresponds with the informational content. See id. ¶ 45. In simplified terms, if a
company announces a positive earnings surprise and its stock price increases, then that
outcome is directionally consistent. If the stock price increases by an amount generally
proportionate to the present value of the earnings surprise, then that outcome is
proportionally consistent. A market that evidences directionality and proportionality is
more likely to be fundamental-value efficient. A market that lacks evidence of
directionality and proportionality is less likely to be fundamental-value efficient. See id. ¶
46.
The question in this case is thus not whether the market for Stillwater’s common
stock was or was not informationally efficient. Nor is it whether the market for Stillwater’s
common stock was or was not fundamental-value efficient. The question is whether the
market for Stillwater’s common stock was informationally efficient enough, and
fundamental-value efficient enough, to warrant considering the trading price as a valuation
indicator when determining fair value. Put differently, the operative question in this case
is whether Sibanye proved that Stillwater’s common stock traded in a market having
attributes that made the trading price a sufficiently reliable valuation indicator to be taken
into account when determining fair value, either in conjunction with other metrics, or even
as the sole metric, with the answer turning on both the attributes of the market for
Stillwater’s common stock, and also on the relative reliability of the trading price compared
to other metrics like the deal price and the outputs of DCF models. See, e.g., Jarden, 2019
WL 3244085, at *4, *27–31 (determining fair value based on the unaffected trading price
after concluding that it was comparatively the most reliable valuation indicator); Cornell
120
& Haut, supra, at 425 (“What is important in legal applications is not some abstract notion
of market efficiency. Rather, what is important is whether the market is sufficiently
efficient in any particular situation.”).
2. Evidence Of Market Efficiency
The experts disagreed about the extent to which the market for Stillwater’s shares
was efficient. The experts discussed factors that courts have considered as indicative of
informational efficiency. The experts also conducted event studies and opined on their
implications for informational efficiency, directionality, and proportionality.
a. The Cammer And Krogman Factors
Zmijewski examined whether the market for Stillwater’s shares exhibited attributes
that courts have associated with informational efficiency. He relied on an instruction from
Sibanye’s counsel that “Delaware Courts cite as attributes of market efficiency
characteristics such as market capitalization, public float, weekly trading volume, bid-ask
spread, analyst following, and market reaction to breaking news and information.”
Zmijewski Rep. ¶ 49. He also analyzed the existence of market makers, eligibility to file
SEC Form S-3, institutional ownership, and autocorrelation of stock returns, noting that
these additional factors were considered in Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J.
1989), and in Krogman v. Sterritt, 202 F.R.D. 467 (N.D. Tex. 2001). Zmijewski Rep. ¶ 51.
For simplicity, and following the parties’ lead, this decision refers to these attributes as the
“Cammer and Krogman factors,” even though not all of them were considered in those two
cases.
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Based on his review of the record, Zmijewski reached the following conclusions
about these attributes:
 Market Capitalization: Zmijewski opined that “firms with a larger market
capitalization tend to have larger institutional ownership,” “tend to be listed on the
New York Stock Exchange,” and are therefore more likely to have shares that trade
in markets that are informationally efficient. Zmijewski Rep. App. C ¶ 35 (citing
Randall S. Thomas & James F. Cotter, Measuring Securities Market Efficiency in
the Regulatory Setting, 63 L. & Contemp. Probs. 105, 115 (2000) (JX 896)). The
Company’s market capitalization averaged approximately $1.3 billion, exceeding
roughly 60% of the combined equities of companies listed on the New York Stock
Exchange and NASDAQ. Id.
 Public Float: Zmijewski opined that having a large percentage of shares in the
public float is indicative of a trading market that is informationally efficient. Id. ¶¶
42–43 (noting that the Delaware Supreme Court in Dell cited a public float of 1.5
billion shares representing 84.29% of the outstanding stock, and in DFC cited a
public float of 37.5 million shares representing 95% of the outstanding stock). The
Company’s public float consisted of 106 million shares representing 87.4% of the
outstanding stock. Id. ¶ 44.
 Weekly Trading Volume: Zmijewski opined that an average weekly trading
volume of at least 2% warrants a “strong presumption” of informational efficiency.
Id. ¶ 2 (quoting Cammer, 711 F. Supp. at 1286). The average weekly turnover for
Stillwater was 6.8%. Id. ¶ 3.
 Bid-Ask Spread: Zmijewski opined that a bid-ask spread of less than 2.5% is
indicative of a trading market that is informationally efficient. Id. ¶¶ 37–38 (citing
DFC, 172 A.3d at 352; Dell, 177 A.3d at 1, 5–6, 24–27, 41; In re Sci.-Atlanta, Inc.
Sec. Litig., 571 F. Supp. 2d 1315, 1340 (N.D. Ga. 2007); Cheney v. Cyberguard
Corp., 213 F.R.D. 484, 501 (S.D. Fla. 2003); and Krogman, 202 F.R.D. at 478). The
Company’s average daily bid-ask spread was 0.10%. Id. ¶ 39.
 Analyst Coverage: Zmijewski opined that the presence of at least five analysts
following a company is indicative of a trading market that is informationally
efficient. Id. ¶¶ 4–6 (relying on Thomas & Cotter, supra, at 115). Seven analysts
followed the Company. Id. ¶ 7.
 Market Makers: Zmijewski opined that the presence of at least nineteen market
makers is indicative of a trading market that is informationally efficient and that the
same inference can be drawn when a company’s shares trade on a centralized
auction market like the New York Stock Exchange. Id. ¶¶ 8–9 (citing Cammer, 711
F. Supp. at 1293; Cheney, 213 F.R.D. at 499–500; In re Dynex Capital, Inc. Sec.
Litig., 2011 WL 781215, at *5 (S.D.N.Y. Mar. 7, 2011); and Zvi Bodie et al.,
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Investments 62–70 (12th ed. 2018)). The Company’s stock traded on the New York
Stock Exchange and had eighty-two market makers. Id. ¶ 10.
 SEC Form S-3 Eligibility: Zmijewski opined that a company’s eligibility to
register shares using SEC Form S-3 eligibility is indicative of a trading market that
is informationally efficient. Id. ¶ 11 (citing Cammer, 711 F. Supp. at 1284). A
company is eligible for Form S-3 if it, among other things, has been subject to the
Securities Exchange Act of 1934 reporting requirements for more than one year,
filed documents in a timely manner, and shown that it has not failed to pay certain
obligations. Id. The Company filed Forms S-3 in 1996, 1998, 2001, 2009, and 2010.
Id. ¶ 12.
 Institutional Ownership: Zmijewski opined that having a significant percentage
of stock owned by institutional investors is indicative of a trading market that is
informationally efficient. Id. ¶ 46 (citing Thomas & Cotter, supra, at 106, 119). As
of September 30, 2016, institutions held approximately 90% of the Company’s
outstanding stock. Id. ¶ 47.
 Autocorrelation: Zmijewski opined that a lack of autocorrelation in a company’s
stock return is indicative of a trading market that is informationally efficient. Id. ¶
48. Autocorrelation measures the extent to which the next day’s stock price
movement can be predicted based on the current day’s stock price. Zmijewski found
no evidence of statistically significant autocorrelation during the 254 trading days
preceding the announcement of the Merger. Id.
 Cause And Effect: Zmijewski opined that market reactions to significant events are
indicative of informational efficiency. Id. ¶ 13 (citing Cammer, 711 F. Supp. at
1287). Zmijewski found that after the Merger announcement, there was a quick and
significant increase in trading volume. Id. ¶ 17. The first news of the Merger was
released at 1:04 a.m on December 9, 2016. Pre-market trading opened at 4:00 a.m.
The first trade occurred at 4:01 a.m. at $17.50. The Company’s stock closed that
day at $17.32 per share, with 38 million shares having traded. The day before, the
Company’s stock closed at $14.68 per share, and only 3.2 million shares were
traded. Id. ¶¶ 15–16; see Zmijewski Tr. 1096.
Having considering the Cammer and Krogman factors, Zmijewski opined that “[t]he
evidence indicates that Stillwater’s common stock traded in a semi-strong efficient
market.” Zmijewski Rep. ¶ 49.
In response, Shaked disputed whether the Cammer and Krogman factors established
informational efficiency to a sufficiently reliable degree. He opined that “the Cammer and
Krogman factors have not been academically tested and are not truly conclusive in judging
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a market as semi-strong form efficient, but merely an indicator that a market is likely semi-
strong form efficient.” Shaked Rep. ¶ 23. The petitioners did not cite any academic studies
or provide other forms of evidence that would undermine the use of the Cammer and
Krogman factors, at least as a starting point for assessing informational efficiency.
Zmijewski did not engage on this issue. He analyzed the factors because he understood that
courts considered them.
b. The Event Studies
The experts also conducted event studies. Zmijewski’s event study tested for a
cause-and-effect relationship between new information and a trading price reaction, which
would provide evidence of informational efficiency. He examined five events—the four
quarterly earnings releases leading up to the announcement of the Merger plus the
announcement itself. Zmijewski characterized the events as positive or negative, and
examined the market evidence to determine if the observations resulted in statistically
significant abnormal returns. Three of the five did, but one of those was the reaction to the
announcement of the Merger. Shaked persuasively observed that finding a statistically
significant relationship between the trading price and the announcement of the Merger was
trivial. See Shaked Tr. 468–69.
For the remaining four observations, Zmijewski found that only two resulted in
statistically significant abnormal returns, and he admitted that he would have expected the
rate of statistically significant results in an informationally efficient market to be higher.
Zmijewski Tr. 1101. The events themselves do not suggest any reason why the market
would have reacted in one instance and not the other. For example, for both the fourth
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quarter of 2015 and the third quarter of 2016, Stillwater announced higher earnings per
share, yet only the former resulted in a statistically significant abnormal return.
Shaked conducted three event studies, and he analyzed the results not only for
evidence of a cause-and-effect relationship consistent with informational efficiency, but
also for evidence of directionality and proportionality that would provide indications of
fundamental value efficiency. In his first study, Shaked looked at eleven quarterly earnings
releases during the three-year period leading up to the announcement of the Merger and
characterized their informational content as positive or negative. He then examined
whether the announcement resulted in abnormal returns consistent with the direction of the
news. Shaked observed that only six of the eleven releases resulted in a directionally
consistent reaction; five of the eleven did not.
In his second study, Shaked examined articles, analyst reports and SEC filings
during the same three-year period, yielding a total of 181 events that he believed contained
material new information. News of the 181 events was published on a total of fifty-six
days, resulting in fifty-six observations. Although there are reasons to question some of
Shaked’s events, on the whole, his identification appears credible. Of these fifty-six
observations, only twelve resulted in statistically significant abnormal returns that were
consistent with the directional content of the information. Moreover, there were thirty-eight
days in the study period when there was a statistically significant abnormal return but no
material news announcement.
In his third study, Shaked tested for proportionality by examining the reaction of the
Company’s stock to the announcement of a significant increase in the expansion of its
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mining operations in its earnings announcement for the third quarter of 2016. In the prior
quarterly earnings releases, the Company forecast that the expansion would produce
between 150,000 and 200,000 PGM ounces per year. JX 134 at 13; JX 187 at 17. In the
earnings announcement for the third quarter of 2016, the Company increased the projection
to between 270,000 and 330,000 PGM ounces per year. JX 309 at 16; see JX 306. Shaked
estimated the pre-tax net income that would result from the increased output, taking into
account the additional costs. He then prepared a discounted-cash-flow model that assumed
production would ramp up by 25,000 ounces per year until 2022, continue at 125,000
ounces per year until 2031, then stop with no terminal value. Based on this model, Shaked
calculated a net present value of $111.6 million for the increased production, which should
have equated to a 7.08% abnormal return. Although the stock reacted positively, the
observed abnormal return was only 0.39%. Shaked concluded that the Company’s stock
did not react in a proportionate manner, further undermining the claim of informational
efficiency.
c. The Assessment Of Market Efficiency
Absent any countervailing evidence, Zmijewski’s analysis of the Cammer and
Krogman factors would support a finding that the trading market for Stillwater’s common
stock had sufficient attributes to be regarded as informationally efficient. Shaked pointed
out that the Cammer and Krogman factors have not been shown to provide a reliable
126
indication of informational efficiency, but given the weight of authority on this issue, an
absence of evidence on this point is no longer enough.23
The event studies, however, cut in the opposite direction. Courts applying the
Cammer and Krogman factors have generally given greater weight to event studies
compared to the other factors.24 Based on his studies, Shaked opined that Stillwater’s stock
23
The experts’ exploration of the Cammer and Krogman factors has left me with
significantly less confidence in them than I had before this litigation. There appears to be
substantial overlap among the factors, such that a single attribute, like a New York Stock
Exchange listing, would correlate with and lead to the satisfaction of multiple factors. For
an issuer to satisfy multiple Cammer and Krogman factors is thus likely less significant
than it might seem. It is also striking how many of the Cammer and Krogman, at least based
on Zmijewski’s report, stem from judicial opinions or law review articles, rather than from
financial or economic papers. I am left with the concern that the Cammer and Krogman
factors may be a convenient heuristic that law-trained judges deploy as a matter of routine,
rather than because they have support in reliable research. That said, the absence of
evidence is not necessarily evidence of absence, and the record in this case does not provide
grounds to call the Cammer and Krogman factors into doubt.
24
See, e.g., In re DVI, Inc. Sec. Litig., 639 F.3d 623, 634 (3d Cir. 2011) (“[B]ecause
an efficient market is one in which information important to reasonable investors . . . is
immediately incorporated into stock prices, the cause-and-effect relationship between a
company’s material disclosures and the security price is normally the most important factor
in an efficiency analysis.” (internal quotation marks omitted)), abrogated on other grounds
by Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455 (2013); In re Xcelera.com
Sec. Litig., 430 F.3d 503, 512 (1st Cir. 2005) (describing the cause and effect prong of
Cammer as “in many ways the most important” and explaining that “[i]n the absence of
such a relationship, there is little assurance that information is being absorbed into the
market and reflected in its price”); Cammer, 711 F. Supp. at 1287 (“[S]howing a cause and
effect relationship between unexpected corporate events or financial releases and an
immediate response in the stock price” is “the essence of an efficient market and the
foundation for the fraud on the market theory.”); see also Teamsters Local 445 Freight
Div. Pension, Fund v. Bombardier Inc., 546 F.3d 196, 207 (2d Cir. 2008) (quoting
Xcelera.com for the import of the cause and effect prong of Cammer). That said, the cause-
and-effect factor is not dispositive. Beaver Cty. Empls.’ Ret. Fund v. Tile Shop Hldgs., Inc.,
2016 WL 4098741, at *10–11 (D. Minn. July 28, 2016) (collecting cases and explaining
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did not trade in a manner consistent with informational efficiency, and Zmijewski’s event
study generated relatively unconvincing results. Given this evidence, it is difficult to
conclude that Stillwater’s stock was informationally efficient to a degree sufficient to use
the trading price as an indicator of fair value when a superior market-based metric, like the
deal price, is available. That does not mean that Stillwater’s stock was not informationally
efficient, only that the deal price is a superior market-based metric for purposes of
determining fair value.
Shaked’s event studies also raised questions about the degree of directionality and
proportionality exhibited by the market for Stillwater’s common stock. This evidence does
not mean that Stillwater’s stock price was unreliable, but it does make it difficult to
conclude that Stillwater’s stock was fundamental-value efficient to a degree sufficient to
use the trading price as an indicator of fair value when a superior market-based metric like
the deal price is available.
3. Evidence Of Information Gaps
The petitioners advance two other challenges to the reliability of Stillwater’s trading
price. Because everyone agrees that the market for Stillwater’s common stock could only
be informationally efficient in the semi-strong sense, the trading price could only account
for publicly available information. The petitioners argue that material information about
Stillwater’s inferred reserves was not publicly available, meaning that the trading price
that “[t]he weight of authority on this issue favors” a finding of market efficiency without
a favorable resolution of the cause and effect factor).
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could not be a reliable indicator of fundamental value. They also cite evidence indicating
that the parties themselves did not trust the market’s estimation of the Company’s value.
The former point is another strike against the trading price; the latter is not.
a. Industry Guide 7
The petitioners argue that Stillwater’s trading price is not a reliable indicator of
value because the market did not have access to material information related to the
Company’s value. On this issue, the petitioners relied on another expert: Thomas
Matthews, a Principal Resource Geologist at Gustavson Associates. Matthews discussed
the constraints imposed by Industry Guide 7, which specifies what the United States
Securities and Exchange Commission permits a mining company to disclose. See JX 843
[hereinafter Industry Guide 7]; 17 C.F.R. 229.801(g).
To oversimplify a significantly more complex area, Industry Guide 7 only permits
a mining company to disclose information about proven reserves or probable reserves. A
proven reserve is a mineral deposit where (i) “quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes,” (ii) “grade or quality are computed
from the results of detailed sampling,” and (iii) “the sites for inspection, sampling and
measurement are spaced so closely and the geologic character is so well defined that size,
shape, depth and mineral content of reserves are well-established.” Industry Guide 7 ¶
(a)(2). A probable reserve is a mineral deposit where “the sites for inspection, sampling,
and measurement are farther apart or are otherwise less adequately spaced,” resulting in a
“degree of assurance” that is “lower than that for proven reserves” but still “high enough
to assume continuity between points of observation.” Id. ¶ (a)(3). Industry Guide 7 does
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not permit a mining company to disclose information about inferred resources, which are
mineral deposits where the quantity, grade, and quality “can be estimated” based on
“geological evidence,” “limited sampling,” and “reasonably assumed, but not verified,
geological and grade continuity.” JX 7 at 4; see Industry Guide 7 ¶ (b)(5), Instruction 3.
Since at least 2012, the Society for Mining, Metallurgy and Exploration, Inc. has
criticized this aspect of Industry Guide 7, complaining that the restrictions on reporting
“limits the completeness and relevance of SEC reports for investors.” JX 15 at 1. The
Society contrasted Industry Guide 7 with the standards applied in other countries, which
permit this disclosure. Id. at 2. In 2016, the SEC acknowledged the issue and proposed
revisions to Industry Guide 7, but the new rules did not go into effect until 2018, long after
the Merger closed. See Modernization of Property Disclosures for Mining Registrants,
Exchange Act Release No. 34-84509, 2018 WL 5668900 (Oct. 31, 2018).
Under Industry Guide 7 as it existed during the period leading up to the Merger,
Stillwater could disclose information about the Stillwater Mine and East Bolder Mine, but
could not disclose information about the inferred resources at Blitz, Lower East Boulder,
Iron Creek, Altar, and Marathon. See JX 727 ¶ 13 (Matthews Reb. Rep.). For Blitz, the
Company possessed but could not disclose “a resource estimation, a conceptual mine plan,
material movement schedules, a capital and operating cost review, and a preliminary
economic analysis for the Blitz expansion.” Id. ¶ 12. The Company could only disclose
certain drill data and briefly describe production target ranges, estimated capital spend, and
timeframes. See id. ¶ 14.
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The parties disagreed about whether disclosure of this information would cause
investors to place a higher or lower valuation on the Company, but they agreed that it
created an information gap for purposes of trading in the Company’s stock. See id. ¶ 16;
Zmijewski Tr. 1151. Zmijewski argued that because the effect of the information was
unknowable, the court should assume that the absence of the information did not bias the
trading price up or down. Sibanye also pointed out that some of the information was
available in a filing that Stillwater made in March 2011 under the laws of Canada. See JX
9 at ‘055; cf. JX 501 at ‘345.
Stillwater’s inability to disclose information about inferred resources under Industry
Guide 7, combined with its partial disclosure of some of this information in a Canadian
filing from 2011, are negative factors for purposes of using the Company’s trading price
as a valuation indicator. They are not dispositive in their own right, but they undermine the
relative persuasiveness of the trading price.
b. Contemporaneous Evidence Of A Valuation Gap
The petitioners also cite contemporaneous evidence in the record in which
knowledgeable insiders affiliated with Stillwater, its advisors, or Sibanye regarded the
trading price as an unreliable indicator of value. For example:
 In May 2015, Stillwater management told the Board that “[m]uch of the value from
Blitz, Lower East Boulder and recycle ramp up yet to be recognized by the market
and potential buyers.” JX 41 at ‘715.
 In January 2016, the Board thought that “the stock had been forced down
significantly and . . . didn’t feel it really was reflective of what was going on in the
business.” McMullen Dep. 145.
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 In June 2016, Froneman described the markets as “a bit all over the place lately.”
JX 152 at ‘532.
 In their second and third quarter 2016 reports, BMO analysts thought the
Company’s stock price did not reflect the value of Blitz. See JX 766 (stating in
October 2016 that “[e]ven with arguably conservative assumptions, we maintain our
opinion that the magnitude of the growth potential at Blitz is not factored into SWC
shares”); Shaked Rep. ¶ 124 (quoting a June 2016 BMO report stating that “Blitz
remains an underappreciated growth opportunity”).
 In October 2016, Vujcic told the Board that the market perceived PGMs as “exposed
to irrational producer behaviour in both South Africa and Russia.” JX 293 at ‘522.
 During October, November, and December 2016, Stewart repeatedly stated that
“[a]t an offer price of ~US$2bn (30% premium to 30 day VWAP) we are effectively
paying a full price for the existing operations, 50% of Blitz and getting the
remaining upside optionality for free.” JX 282 at ‘775; see JX 410; JX 378 at ‘009;
JX 447 at ‘981. He did not believe the market was “really considering Blitz.” JX
397 at ‘451; see JX 280 at ‘279 (describing the Company’s underperformance as
“unlikely to remain as market recognises improvements are sustainable and Blitz
comes on line”).
 In late November 2016, two weeks before signing, Stewart stated that the market
was “currently at or near the bottom of the PGM cycle,” suggesting a depressed
stock price. JX 410 at ‘099; see PTO ¶ 257; see also JX 280 at ‘279; JX 399 at ‘407.
 In early December 2016, days before signing, McMullen commented on how the
price of palladium had been artificially depressed. See JX 437 at ‘471 (noting that
palladium was “finally starting to reflect the fundamentals”)
 After announcing the Merger, Sibanye received two “deal of the year” awards and
commented in both instances that the Merger was signed “at an opportune time in
the commodity price cycle.” JX 511; JX 641 at 1.
 At trial, Schweitzer testified that “[t]he company’s stock price was all over the place
from 2013 to 2016” and that he and “McMullen both believed there was a disconnect
between the price of metals and the share price for Stillwater stock.” Schweitzer Tr.
173.
This evidence as a whole is less extensive and persuasive than what the record
demonstrated about the contemporaneous views of knowledgeable insiders regarding the
existence of a valuation gap in Dell, and the Delaware Supreme Court in that case found
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that the trial court erred by giving weight to that evidence. See Dell, 177 A.3d 25–26; cf.
Dell Trial, 2016 WL 3186538, at *33–36. This decision therefore does not give any weight
to the petitioners’ weaker showing in this case.
4. The Comparative Reliability Of The Trading Price
Through Zmijewski’s analysis of the Cammer and Krogman factors, Sibanye made
an initial showing that would be sufficient to support the reliability of the trading price as
a valuation indicator absent contrary evidence. The results of the experts’ event studies and
the limitations imposed by Industry Guide 7 provided contrary evidence. Based on the
parties’ showings, the trading price is a less persuasive and less reliable valuation indicator
in this case than the deal price. The lack of a reliable trading price does not undermine a
court’s ability to rely on the deal price, where the persuasiveness of the deal price has been
established by analyzing the sufficiency of the sale process. See Columbia, 2019 WL
3778370, at *49.
This decision does not find that the trading price was so unreliable that it could not
be used as a valuation indicator. If a market-tested indicator like the deal price was
unavailable, then this decision might well have given weight to the trading price. Had this
decision been forced to take that route, it would not have relied on the unaffected trading
price, because Sibanye did not argue for its use, but instead would have taken into account
the adjusted trading price.
Based on the record that the parties generated, Sibanye did not carry its burden to
establish that the adjusted trading price was a sufficiently reliable valuation indicator for
the court to use in determining fair value. The reliability of the adjusted trading price
133
depended on the reliability of the unaffected trading price, and the record provides
sufficient reason for concern about incorporating a trading price metric. This decision
therefore does not give any weight to the adjusted trading price.
C. The Discounted Cash Flow Models
The petitioners and Sibanye each introduced a DCF valuation prepared by an expert.
The petitioners relied on Rosen, whose DCF model generated a value of $25.91 per share.
Sibanye relied on Zmijewski, whose DCF model generated a value of $17.03 per share.
The difference amounts to approximately $1 billion in value.
The DCF method is a technique that is generally accepted in the financial
community. “While the particular assumptions underlying its application may always be
challenged in any particular case, the validity of [the DCF] technique qua valuation
methodology is no longer open to question.” Pinson, 1989 WL 17438, at *8 n.11. It is a
“standard” method that “gives life to the finance principle that firms should be valued based
on the expected value of their future cash flows, discounted to present value in a manner
that accounts for risk.” Andaloro v. PFPC Worldwide, Inc., 2005 WL 2045640, at *9 (Del.
Ch. Aug. 19, 2005).
The DCF model entails three basic components: an estimation of net cash
flows that the firm will generate and when, over some period; a terminal or
residual value equal to the future value, as of the end of the projection period,
of the firm’s cash flows beyond the projection period; and finally a cost of
capital with which to discount to a present value both the projected net cash
flows and the estimated terminal or residual value.
In re Radiology Assocs., Inc. Litig., 611 A.2d 485, 490 (Del. Ch. 1991) (internal quotation
marks omitted).
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In Dell and DFC, the Delaware Supreme Court cautioned against using the DCF
methodology when market-based indicators are available. In Dell, the high court explained
that “[a]lthough widely considered the best tool for valuing companies when there is no
credible market information and no market check, DCF valuations involve many inputs—
all subject to disagreement by well-compensated and highly credentialed experts—and
even slight differences in these inputs can produce large valuation gaps.” Dell, 177 A.3d
at 37–38. The high court warned that when market evidence is available, “the Court of
Chancery should be chary about imposing the hazards that always come when a law-trained
judge is forced to make a point estimate of fair value based on widely divergent partisan
expert testimony.” Id. at 35. Making the same point conversely in DFC, the Delaware
Supreme Court advised that a DCF model should be used in appraisal proceedings “when
the respondent company was not public or was not sold in an open market check . . . .”
DFC, 172 A.3d at 369 n.118. The high court commented that “a singular discounted cash
flow model is often most helpful when there isn’t an observable market price.” Id. at 370.
This case illustrates the problems that the Delaware Supreme Court identified. The
experts disagreed over many inputs, with small changes producing large swings in value.
The briefing focused on eight inputs, with four generating the bulk of the difference.
First, the experts debated whether to apply a small-company risk premium,
otherwise known as a size premium. Zmijewski applied a size premium of 1.66%, relying
on Duff & Phelps, 2017 Valuation Handbook – U.S. Guide to Cost of Capital (2017). Rosen
did not apply one, arguing that it was not warranted. To the extent the court disagreed, he
argued for using a premium of 1.5% drawn from Ibbotson Associates, SBBI 2013 Valuation
135
Yearbook (2013). The scholarly literature on whether and how to apply a size premium is
less than enlightening. The same respected scholars have found different results depending
on the data set,25 and others have engaged in vigorous debate about how to interpret the
data and what inferences to draw.26 This one dispute results in a valuation swing of $2.13
per share, accounting for approximately 24% of the difference between the two models.
25
Compare Eugene F. Fama & Kenneth R. French, A Five-Factor Asset Pricing
Model, 116 J. Fin. Econ. 1 (2015) (JX 681) (finding evidence of size premium in asset
pricing models), and Eugene F. Fama & Kenneth R. French, Common Risk Factors in the
Returns on Stocks and Bonds, 33 J. Fin. Econ. 3 (1993) (JX 680) (finding evidence that
stocks with smaller market capitalizations tended to have higher average returns), with
Eugene F. Fama & Kenneth R. French, Size, Value, and Momentum in International Stock
Returns, 105 J. Fin. Econ. 457 (2012) (JX 679) (finding no evidence of a size premium in
any region based on analyses of international stock returns from November 1989 to March
2011).
26
Compare, e.g., Cliff Asness et al., Size Matters, If You Control Your Junk, 129 J.
Fin. Econ. 479, 479 (2018) (finding “[a] significant size premium . . . , which is stable
through time, robust to the specification, more consistent across seasons and markets, not
concentrated in microcaps, robust to non-price based measures of size, and not captured by
an illiquidity premium” and arguing that challenges to the existence of the size premium
“are dismantled when controlling for the quality, or the inverse ‘junk’, of a firm”), and
Roger Grabowski, The Size Effect Continues To Be Relevant when Estimating the Cost of
Capital, 37 Bus. Valuation Rev. 93 (2018) (responding to criticisms of Ang, infra), with
Aswath Damodaran, The Small Cap Premium: Where is the Beef?, Musings on Markets
(Apr. 11, 2015) (JX 682 at 1) (commenting that “the historical data, which has been used
as the basis of the argument [for size premia], is yielding more ambiguous results and
leading us to question the original judgment that there is a small cap premium” and that
“forward-looking risk premiums, where we look at the market pricing of stocks to get a
measure of what investors are demanding as expected returns, are yielding no premium for
small cap stocks”), http://aswathdamodaran.blogspot.com/2015/04/the-small-cap-
premium-fact-fiction-and.html, and Clifford Ang, The Absence of a Size Effect Relevant to
the Cost of Equity, 37 Bus. Valuation Rev. 87 (2018) (JX 732 at 3–4) (concluding from
survey of empirical literature that either “(1) investors . . . do not believe a size effect exists
and, therefore, do not demand compensation for it, or (2) investors . . . believe a size effect
exists, but believe the adjustment for the size effect is not made in the cost of equity”).
136
Second, the experts debated the size of the equity risk premium. Zmijewski used a
historic supply-side risk premium of 5.97% published by Duff & Phelps. See JX 837; JX
893. Duff & Phelps advised practitioners to deduct 1.08% from this measurement to
account for “the WWII Interest Rate Bias.” JX 893 at 34. Zmijewski did not make the
adjustment, explaining that it would not make sense to exclude the effect of interest rate
controls during World War II, while failing to account for other periods of government
control, such as the extreme phases of interest rate repression and quantitative easing that
followed the 2008 financial crisis. Zmijewski Tr. 1042–43. Rosen used a forward-looking
premium of 5.34%, derived from a model created by Aswath Damodaran. See JX 678.
Zmijewski criticized the model, explaining that a user could generate approximately
seventy different equity risk premiums by manipulating the inputs and objecting to some
of Rosen’s selections. See JX 893 at 47; JX 894; Zmijewski Tr. 1053–54. This one dispute
results in a valuation swing of $1.33 per share, accounting for approximately 15% of the
difference between the two models.
Third, the experts disputed which set of commodity price forecasts to use to generate
cash flows. Zmijewski relied on price forecasts prepared by another expert for Sibanye. JX
710 (Burrows Rep.). Rosen relied on price forecasts from Bloomberg. JX 654 ¶ 8.21
(Rosen Rep.). This one dispute results in a valuation swing of $0.82 per share, accounting
for approximately 9% of the difference between the two models.
Zmijewski has acknowledged that “there is much weaker evidence of a size effect since
the original [article finding the effect] was published.” JX 836 at 322.
137
Fourth, the experts diverged in their treatment of Stillwater’s exploration areas.
Sibanye argued that any valuation of these properties would be speculative and instructed
Zmijewski not to try. Zmijewski Tr. 1074–75. Rosen estimated an “in-ground metal dollar
value” for the properties, then relied on a report that examined PGM transactions in South
Africa to estimate that exploration properties could be worth “between .5 percent and 2.5
percent of the estimated in situ dollar value of metal.” Rosen Tr. 277–78; see JX 765. The
respondent’s mining expert identified many problems with Rosen’s method. See JX 768.
The dispute over the exploration areas results in a valuation swing of more than $2.00,
accounting for approximately 23% of the difference between the two models.
Four other disputes account for the remaining valuation swing of $3.00 per share.
Those disagreements concern how to account for the resources in mine-adjacent areas, the
amount of excess cash, the value of inventory, and the value of Altar. As with the four
major disputes, both sides have good reasons for their positions.
The legitimate debates over these inputs and the large swings in value they create
undercut the reliability of the DCF model as a valuation indicator. If this were a case where
a reliable market-based metric was not available, then the court might have to parse through
the valuation inputs and hazard semi-informed guesses about which expert’s view was
closer to the truth. In this case, there is a persuasive market-based metric: the deal price
that resulted from a reliable sale process. Dell and DFC teach that a trial court should have
greater confidence in market indicators and less confidence in divergent expert
determinations. See Dell, 177 A.3d at 35–38; DFC, 172 A.3d at 368–70 & n.118.
Compared to the deal-price metric, the DCF technique “is necessarily a second-best method
138
to derive value.” Union Illinois, 847 A.2d at 359. This decision therefore does not use it.
See In re Appraisal of Solera Hldgs., Inc., 2018 WL 3625644, at *32 (Del. Ch. July 30,
2018).
III. CONCLUSION
The fair value of the Company’s common stock at the effective time of the Merger
was $18.00 per share. The legal rate of interest, compounded quarterly, shall accrue on the
appraised value from the effective date until the date of payment. The parties shall
cooperate to prepare a form of final order. If there are additional issues that need to be
resolved, then the parties shall submit a joint letter within fourteen days that identifies them
and proposes a path to bring this matter to a conclusion at the trial level.
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APPENDIX
Case Time Between Time from Total Time Termination Fee Other Deal
Announcement Commencement for Protection
of Deal and of Tender Offer Purposes of Measures
Commencement to Closing Court
of Tender Offer Decision
Yanow v. Sci. 4 business days, 19 business 23 business Expense Window-
Leasing, Inc., 1988 4 calendar days days, 28 days, 32 reimbursement shop, 16.6%
WL 8772 (Del. Ch. calendar days calendar stock option
Feb. 5, 1988) days lock-up
In re Fort Howard 4 business days, 25 business 29 business $67.8 million; No-shop
Corp. S’holders 4 calendar days days, 38 days, 42 1.9% of equity permitting
Litig., 1988 WL calendar days calendar value target to
83147 (Del. Ch. days provide
Aug. 8, 1988) information
and
negotiate
(i.e., a
window-
shop).
In re KDI Corp. 4 business days, 24 business 28 business $8 million; 4.3% Window-
S’holders Litig., 6 calendar days days, 35 days, 41 of equity value shop
1988 WL 116448 calendar days calendar
(Del. Ch. Nov. 1, days
1988)
In re Formica Corp. 3 business days, 30 business 33 business Graduated fee Strict no-
S’holders Litig., 3 calendar days days, 43 days, 46 capped at 1.9% of shop
1989 WL 25812 calendar days calendar equity value
(Del. Ch. Mar. 22, days
1989)
Braunschweiger v. Single-step merger. No tender offer. 143 business 4.5% of equity None
Am. Home Shield days, 205 calendar days, between announcement of value
Corp., 1989 WL merger and stockholder vote approving deal.
128571 (Del. Ch.
Oct. 26, 1989)
Roberts v. Gen. 5 business days, 25 business 30 business $33 million; 2% of Window-
Instr. Corp., 1990 7 calendar days days, 35 days, 42 equity value shop
WL 118356 (Del. calendar days calendar
Ch. Aug. 13, 1990) days
McMillan v. Single-step merger. No tender offer. 102 business $3.1 million; 3.5% Window-
Intercargo Corp., days, 148 calendar days between announcement of of equity value shop
768 A.2d 492 (Del. merger and stockholder vote approving deal.
Ch. 2000)
In re Pennaco 9 business days, 20 business 29 business $15 million; 3% of Window-
Energy, Inc. 17 calendar days days, 28 days, 45 equity value shop
S’holders Litig., 787 calendar days calendar
A.2d 691 (Del. Ch. days
2001)
In re Cysive, Inc. Single-step merger. No tender offer. 45 business Expenses up to Window-
S’holders Litig., 836 days, 63 calendar days between announcement of $1.65 million; up shop with
A.2d 531 (Del. Ch. merger and stockholder vote approving deal. to 1.7% of deal matching
2003) value rights
140
In re MONY Gp. Single-step merger. No tender offer. 82 business $50 million; 3.3% Window-
Inc. S’holder Litig., days, 121 calendar days between announcement of of equity value; shop
852 A.2d 9 (Del. Ch. merger and stockholder vote approving deal. 2.4% of deal value
2004)
In re Dollar Thrifty Single-step merger. No tender offer. 100 business $44.6 million with Window-
S’holder Litig., 14 days, 144 calendar days between announcement of up to additional $5 shop with
A.3d 573 (Del. Ch. merger and stockholder vote approving deal. million in matching
2010) expenses; 4.3% of rights
deal value after
accounting for
options, RSUs and
performance units.
In re Smurfit–Stone Single-step merger. No tender offer. 89 business $120 million; Window-
Container Corp. days, 123 calendar days between announcement of 3.4% of equity shop with
S’holder Litig., 2011 merger and stockholder vote approving deal. value matching
WL 2028076 (Del. rights
Ch. May 20, 2011)
In re El Paso Corp. Single-step merger. No tender offer. 51 business $650 million; Window-
S’holder Litig., 41 days, 75 calendar days between announcement of 3.1% of equity shop with
A.3d 432 (Del. Ch. merger and stockholder vote approving deal. value matching
2012) rights
In re Plains Expl. & Single-step merger. No tender offer. 79 business $207 million; 3% Window-
Prod. Co. S’holder days, 117 calendar days between announcement of of deal value shop with
Litig., 2013 WL merger and stockholder vote approving deal. matching
1909124 (Del. Ch. rights
May 9, 2013)
C & J Energy Single-step merger. No tender offer. 130 business $65 million; Window-
Servs., Inc. v. City of days, 189 calendar days between announcement of 2.27% of deal shop
Miami Gen. Empls.’ merger and stockholder vote approving deal. value
and Sanitation
Empls.’ Ret. Tr., 107
A.3d 1049 (Del.
2014)
141