(CN) – In an appraisal action, the Delaware Chancery Court found that AOL’s fair value when it was acquired by Verizon was actually three percent below the $50-per-share consideration received by shareholders.
In 2015, Verizon Communications closed on its acquisition of AOL, which valued the company at $4.4 billion or $50 per share.
However, shareholders sought a court appraisal of AOL, claiming that the one-time internet giant should have been valued much higher at $68.98 per share, but deal protections prevented another bidder from making a higher offer.
In particular, AOL CEO Tim Armstrong made very strong statements indicating that the bidding process was over and the company was committed to moving forward with an acquisition by Verizon.
“I’m committed to doing the deal with Verizon and I think that as we chose each other because that’s the path we’re on. I gave the team at Verizon my word that, you know, [w]e’re in a place where this deal is going to happen and we’re excited about it,” Armstrong said.
Vice Chancellor Sam Glasscock agreed with shareholders.
“Market participants at this level are not shrinking violets, nor are they barnacles that are happy players during a favorable tide, but shut tight at its ebb,” he said. “Nonetheless, I find the unusually preclusive statements by [AOL’s] CEO, in light of the other attributes of this transaction, such that I cannot be assured that a less restrictive environment was unlikely to have resulted in a higher price for AOL.”
In his final calculations, the judge refused to assign the transaction price any weight as a portion of his fair value determination.
Instead, Glasscock relied on a discounted cash flow analysis to value AOL. However, this method did not tender a result that favored shareholders.
“My DCF analysis results in a fair value of $48.70 per share,” the judge said.
Glasscock noted the incongruity of his finding that the deal negotiation process was insufficient to warrant giving the transaction price any weight, yet holding that AOL was actually worth less than Verizon paid for it.
“One explanation for this incongruity is that a deal price may contain synergies that have been shared with the seller in the deal but that are not properly included in fair value,” he concluded.