In appraisal actions brought pursuant to 8 Del. C. § 262, the Court of Chancery usually relies on experts performing discounted cash flow and comparable company analyses to determine the fair value of a company. The court may not accept the analysis of either side’s expert or experts in toto, but will generally use the analysis of at least one expert as a launching point for determining fair value. But what happens if the court decides that none of the expert analyses are a reliable indicator of fair value? The court confronted this situation in Huff Fund Investment Partnership v. CKx, C.A. No. 6844-VCG (Del. Ch. Nov. 1, 2013). After concluding that neither side’s expert offered a reliable basis for determining the fair value of CKx Inc., the court instead relied upon the merger price to determine fair value.
Petitioners Huff Fund Investment Partnership and Bryan Bloom were CKx stockholders. CKx was a Nasdaq-traded company that owned rights to certain entertainment properties. CKx’s primary asset was 19 Entertainment, which owned the rights to the number-one-rated television show “American Idol.” In 2007, CKx’s founder and largest stockholder, Robert Sillerman, sought to buy out the public stockholders for $13.75 per share. This buyout bid failed due to deteriorating credit conditions. Although the Sillerman bid failed, CKx still executed eight confidentiality agreements with strategic and private equity bidders that were interested in acquiring some interest in the company. In October 2010, CKx publicly announced that it was no longer discussing a potential sale and pursued potential acquisitions. Following the public announcement that CKx was no longer for sale, several private equity funds, including Apollo Global Management, Gores Group and Prometheus/Guggenheim expressed interest in CKx. In March 2011, Gores offered $4.75 per share, Guggenheim offered $4.50 per share and Apollo offered $5 per share.
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