In Re Interstate General Media Holdings, LLC., C.A. No. 9221-VCP (Del. Ch. Apr. 25, 2014)
In this case, the Delaware Court of Chancery was asked to decide the best method of effectuating the dissolution and liquidation of a deadlocked LLC. Although the parties could have crafted a specific procedure to govern the dissolution in the LLC Agreement, they failed to do so. Thus, the choice of dissolution procedure was left to the discretion of the court. Petitioners asked that the court require the LLC to be sold in a private auction open only to the LLC’s members and a specific labor union. Respondents, also members of the LLC, preferred that the LLC be sold in a public auction to account for possible third party interest. In addressing the dispute, the court first recognized that there “is no single blueprint” under Delaware law for maximizing the value of an entity through sale. “Therefore, determining the value maximizing process by which an entity should be liquidated is both a fact-intensive and fact-specific endeavor.”
Applying this standard, the court found that no “serious” third party public bidder was likely to emerge, and thus, a private auction was proper. The court based its conclusion on the fact that the potential sale of the LLC had been public knowledge for months, but the Respondents were unable to point to one interested third party bidder. Although there had been previous interest from six third party bidders, each of them withdrew their interest once they saw the LLC’s financials. The court also noted that because the parties agreed that the company would be sold “as is,” with no representations or warranties, a third party buyer was very unlikely to acquire the company on such a “decidedly seller-friendly basis.” With no third party likely to emerge, the court found that utilizing a private auction would be the faster and less expensive option.