WILMINGTON, Del. (Reuters) – A Delaware judge ruled against hedge funds on Friday that tried to get more cash out of Newell Brands Inc’s (NWL.O) 2016 acquisition of consumer goods company Jarden Corp, the latest setback for a once-popular investment strategy known as appraisal.
Vice Chancellor Joseph Slights of the Court of Chancery found that the fair value of Jarden stock was $48.31 when it was acquired by Newell, well below the $71.35 sought by funds affiliated with Fir Tree Partners and Verition Fund Management.
The ruling is one of the more stinging losses for investors pursuing appraisal, which once delivered reliable returns and rankled Wall Street dealmakers for adding costs to mergers.
Appraisal allows shareholders to decline a deal price and instead go to court to try to convince a judge that they deserved a higher price for their stock. The funds will now receive $48.31 per share, not the $59.21 per share paid to other Jarden stockholders in 2016 in a deal valued at $16 billion.
The hedge funds could have received an additional $26.5 million for their 2.4 million Jarden shares if they had accepted the deal price.
The ruling can be appealed.
A lawyer for the hedge funds, Stuart Grant, did not immediately respond to a request for comment.
Slights said there were indicators that Jarden’s sale process was marred by the negotiating style of Chief Executive Officer Martin Franklin, whose rush for a deal may have depressed the potential price.
But he accepted Jarden’s arguments that the market price for its stock prior to the deal announcement was the best indicator for fair value. He also noted the company struggled to sell stock at $49 per share prior to the Newell deal.
Slights’ ruling is a sharp departure from earlier in the decade, when Delaware judges found funds deserved well more than the deal price for several companies such as computer maker Dell Inc, delivering big returns.
Even when judges ruled against investors, they tended to find fair value was the deal price and not below it, limiting the investors’ potential downside.
It became such a popular strategy that the U.S. Chamber of Commerce, a business lobby group, began to question if the majority of U.S. public companies should continue to incorporate in Delaware. State lawmakers eventually amended the law to make appraisal less potentially lucrative.
Reporting by Tom Hals in Wilmington, Delaware; additional reporting by Jonathan Stempel in New York; Editing by Leslie Adler