Document: Global GT LP v. Golden Telecom, Inc., C.A. No. 3698-VCS (Del. Ch. Apr. 23, 2010)

In this appraisal action, the Court of Chancery was tasked with the fairly challenging job of valuing a Russian-based telecommunications company that was listed on NASDAQ.  As with many appraisal actions, the Court engaged in its own valuation analysis after receiving what it deemed to be somewhat faulty valuations from both parties.  While a detailed discussion of all of the factors involved in the Court’s use of the discounted cash flow (DCF) methodology and all of the bases for its ultimate conclusion and critiques of the analysis presented by the respective experts for each party is beyond the scope of this summary, the following findings are particularly noteworthy:

The defendant’s argument that weight should be given to the merger price itself on the grounds that the merger reflected a market-tested price was rejected for two reason:

The special committee that negotiated the merger did not engage in an active market check either before or after the signing of the merger agreement.
Although a passive market check was performed, it was based on the disingenuous assumption that entities which were the two largest stockholders of both parties to the proposed merger would both sell their shares of the target corporation’s stock to another bidder if a superior proposal was received – particularly in light of the fact that one of these stockholders (which owned 26% of the target corporation) made a public announcement that it would not do so.

The Court ultimately concluded that the plaintiffs were entitled to receive $125.49 per share (to be supplemented with an award of interest at the applicable statutory rate), which was much closer to the plaintiffs’ proposed valuation of $138.37 per share than the $88.14 per share valuation proposed by the defendants’ experts, or the $105 per share merger consideration.
The Court relied exclusively on the DCF analysis because the experts themselves gave little weight to the comparable companies and transactions analyses and also because it was not satisfied with the experts’ level of knowledge with respect to the Russian economy and telecommunications industry.