Public Company Appraisals

Transcription

1 Public Company Appraisals Rethinking Control Premiums and Auction Process P R E S E N T E D T O : ABA M&A Committee Stand-Alone Meeting P R E S E N T E D B Y : Yvette R. Austin Smith Torben Voetmann J a n u a ry Copyright 2015 The Brattle Group, Inc.

2 Public Company Appraisals Highlight Valuation Unlike prior generation of appraisals, target companies are widelyheld with more extensive sources of outside investment capital Increase in public company appraisals provides opportunity to revisit valuation concepts that are often the default Two specific topics: Control premiums Efficacy of auctions for price discovery Emerging research anticipated to influence valuation analysis in appraisal and breach of fiduciary duty cases 1 brattle.com

3 Control Premium Valuation discount for lack of control typically disallowed under DE appraisal statute Control premium required to correct for implicit minority discount resulting from the Guideline Public Company approach Control premium is added to the value of equity Acquisition premiums, from relevant set of transactions, have been accepted as a proxy for control premium Acquisition premiums measured as % difference between: Unaffected target stock price Price per share of consummated transaction 2 brattle.com

4 Issue #1: Flawed Reliance on Acquisition Premium???? Arguably Allowed by Statute Disallowed by Statute Value of Control Value of Synergies Acquisition Premium, as Measured 3 brattle.com

5 Issue #2: Is the Value of Control Constant? What are the elements of control that convey value? What can shareholders do with control? Do these elements exist, at least to the same extent, in all circumstances? Can shareholders always exercise the same options with control? How is the value of control apportioned among shareholders? Do minority shareholders always share equally in the value of control? How do the elements and apportionment of control differ between: a closely-held company with relatively limited sources of outside capital? a public traded company with more extensive sources of outside capital? 4 brattle.com

6 Linking Deal Process and Value Robust deal process has resulted in finding that transaction price equals fair value Auctions are frequently considered by courts as evidence of a robust deal process Key Questions: Do auctions lead to effective price discovery for all goods? What alternatives result in no less effective price discovery? Longstanding auction research and practices have been under-applied in M&A litigation 5 brattle.com

7 Auction Theory Can Explain Deal Process Nature of the good determines optimal # of bidders and optimal bidding process Private Value Goods Greater synergistic, idiosyncratic value Generally, fewer bidders needed for effective price discovery Too many bidders can result in less effective price discovery Common Value Goods Lesser synergistic value Generally, more bidders needed for effective price discovery More likely to result in Winner s Curse Other key determinants of an optimal auction include: Dissemination of information Reserve price and other price signals Bidder confidence in the process 6 brattle.com

8 About Brattle The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governments around the world. We aim for the highest level of client service and quality in our industry. We are distinguished by our credibility and the clarity of our insights, which arise from the stature of our experts, affiliations with leading international academics and industry specialists, and thoughtful, timely, and transparent work. Our clients value our commitment to providing clear, independent results that withstand critical review. 7 brattle.com

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10 Mergers and Acquisitions Litigation The Brattle Group combines industry expertise with financial, economic, and statistical analyses to advise acquirers, targets, fiduciaries and courts on preand post-closing M&A litigation. Brattle s experts have testified in, or consulted on, matters involving breach of fiduciary duty, appraisal/dissenting shareholders, breach of contract, lack of good faith and fair dealing, and unfair competition. AREAS OF EXPERTISE Business Enterprise and Securities Valuation Fair Price/Entire Fairness Going Private Transactions Valuation of Derivative Lawsuits Statutory Fair Value Forensic Accounting 9 brattle.com

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