Huff Fund Investment Partnership v. CKx, Inc.: Delaware Supreme Court Affirms Chancery Court’s Appraisal Decision that Merger Price Was the Best Indicator of Fair Value and Statutory Interest Could Not be Tolled with a Proffer of ConsiderationSullivan & Cromwell LLP - February 18, 2015
On February 12, 2015, the Delaware Supreme Court affirmed in full (without an opinion) the Chancery Court’s decision in Huff Fund Investment Partnership v. CKx, Inc. (VC Glasscock), an appraisal case in which the Chancery Court held that (i) the merger price was the best indicator of fair value of the common stock of CKx, Inc. (“CKx”) and (ii) it did not have the discretion to toll the running of statutory interest (five percent over the Federal Reserve discount rate from the effective date of the merger through the date of payment of the judgment) on the undisputed portion of the value of the stock that CKx unconditionally offered to Huff Fund Investment Partnership (“Huff”) at the outset of the appraisal proceedings.
The Delaware Supreme Court’s affirmation of the Chancery Court’s decision is a mixed bag for those who engage in appraisal arbitrage. On the one hand, the Huff decision makes clear that while the Chancery Court may not presume the merger price to be the best indicator of fair value in an appraisal proceeding, it may well find the merger price to be the most reliable indication of value. On the other hand, the Chancery Court’s view that it has no discretion to toll the statutory interest rate on a portion of the potential appraisal award offered unconditionally by a target company to a petitioner during the pendency of the proceeding—combined with the historically low incident rate of appraisal proceedings awarding less than the merger price—may still fuel appraisal arbitrage in a low interest rate environment, especially where the purchase of the stock can be effected on a leveraged basis. This is particularly true when the Huff decision is considered in conjunction with two other recent Chancery Court decisions in which stockholders who bought shares after the record date were still permitted to seek appraisal for their shares without having to show that the shares were not voted in favor of the merger.