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Huff Fund Investment Partnership v. CKx, Inc.

Court of Chancery of Delaware

May 19, 2014

Huff Fund Investment Partnership
v.
CKx, Inc.

Submitted: May 8, 2014.

Samuel T. Hirzel Dawn Kurtz Crompton Procter Heyman LLP.

Stephen P. Lamb Justin Shuler Paul, Weiss, Rifkind, Wharton & Garrison LLP.

Dear Counsel,

On November 1, 2013, I issued my post-trial Memorandum Opinion in this appraisal action, finding the merger price generated from an arm's length sales process—$5.50 per share—to be the best available indicator of the fair value of the subject company, CKx.[1] Though I found, in the absence of reliable market- or income-based valuation analyses, that the merger price paid by the acquirer, Apollo, was the best available measure of CKx's fair value, I acknowledged that certain adjustments to the merger price might be necessary to reflect the value of the Company as a going concern. As a result, in my Memorandum Opinion, I indicated:

As nearly every Delaware appraisal case makes clear, the objective of an appraisal is to determine the going-concern value of the target company's equity. The evidence that has been admitted so far suggests that there are few, if any, synergies for Apollo in this transaction. Because there is limited evidence in the record concerning the existence and amount of synergies that Apollo sought to realize in its acquisition of CKx, I will allow the parties, if they so desire, the opportunity to provide additional evidence on this limited issue.[2]

On November 8, 2013, the Petitioner filed a "Motion for Reargument of the November 1, 2013 Memorandum Opinion's Rulings Concerning Synergies and Other Assets Not Properly Accounted for in the Merger Price or, in the Alternative, for Certification of an Immediate Interlocutory Appeal from that Opinion." In support of that Motion, the Petitioner argued that (1) "the Court should modify the Memorandum Opinion by denying any further opportunity for Respondent to present evidence of synergies, " and (2) "Petitioners should be given a commensurate opportunity to present further evidence on the existence of CKx assets 'not properly accounted for in the sale.'"[3] On January 13, 2014, I heard argument by telephone on that Motion. Despite the November 1 Memorandum Opinion's indication that I would allow the parties to supplement the record with additional evidence if they so desired, both the Petitioner and the Respondent represented at that teleconference that they wished to make argument based only on the existing record. Specifically, Petitioner's counsel stated at the teleconference that:

To now allow, after the evidence has gone in and the record is closed, to allow the Respondent now an opportunity to be relieved of the consequences of a tactical choice that it made about what evidence to put on, from our perspective, doesn't seem to . . . accord with the interests of justice.[4]

Similarly, Respondent's counsel responded that:

[W]e are not interested in imposing on the Court and coming back and having another trial. We are not interested in reopening all of the settled issues that we have gone through. We believe that the issue of synergies can be addressed on the papers. We have no—we have no interest at this point in putting in additional witnesses or additional evidence. We want to make a short and plain presentation on

synergies.[5]

Accommodating the parties' preference, on May 8, 2014, I heard oral argument— without presentation of additional evidence—on the issues of (1) whether the merger price should be adjusted downward to exclude synergies Apollo sought to realize in the merger, and (2) whether the merger price should be adjusted upward to account for the value of certain assets not reflected in the merger price. For the reasons that follow, I decline to adjust the merger price in either direction.

I. Analysis

Section 262(h) requires that, in conducting an appraisal, this Court "determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, "[6] to arrive at a subject company's going-concern value, i.e., its value as an operating entity.[7]Both the Petitioner and Respondent here agree that certain adjustments should be made to the merger price to appropriately reflect the going-concern value—as opposed to third-party sale value—of CKx.[8] However, while the Respondent argues that the merger price should be adjusted downward to exclude synergies derived by effectuation of the merger, the Petitioner contends that the merger price should be upwardly adjusted to include the value of certain business opportunities not priced in to the acquirer, Apollo's, bid. I understand that, as in other ...


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