Sadis & Goldberg Wins Appraisal Rights Trial

Sadis & Goldberg won a major victory in an appraisal rights trial, in which Chancellor Strine appraised its clients’ shares in The Orchard Enterprises, Inc. (“Orchard”) at $4.67 per share, a premium of 2.3 times the value of the $2.05 merger price. The victory demonstrates the opportunity for clients to achieve alpha through the little-known strategy of exercising appraisal rights. Brief Background In In Re: Appraisal of the Orchard Enterprises, Inc., the firm represented Quadre Investments, L.P., Christopher Yeagley and Matt Giffuni, who exercised their appraisal rights by voting against a going-private transaction in which a party holding majority control over Orchard, named Dimensional Associates, LLC bought out the minority stockholders. The firm’s clients prevailed on the main two issues in the case, (i) that a preferred stock liquidation preference was not triggered by the transaction, and thus should not reduce the value of common stock; and (ii) Orchard used an artificially-inflated discount rate in calculating the value of Orchard’s stock.

Analysis This victory demonstrates the value of investors using appraisal rights actions to generate alpha from mergers and similar transactions. The firm’s clients more than doubled the value of their Orchard investment through their appraisal action. And the $4.67/share appraisal verdict is almost three times the $1.70 price of Orchard’s common stock on the date the going-private transaction was announced. As Chancellor Strine observed in his decision, an appraisal action may be particularly beneficial for minority shareholders concerned that a merger price is too low due to the influence of a majority shareholder. Further, the decision also reflects that an appraisal action will yield a favorable return where a company has departed from generally accepted valuation techniques to drive down the value of a merger.

Sadis & Goldberg Partner Sam Lieberman handled the trial on behalf of the firm’s clients, with assistance from Local Counsel, Jack Harris of Berger Harris, LLC.

Cheryl Spratt