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March 5, 2014

In re Orchard: Fair Price and Fair Value Standards Call for Equivalent Economic Inquiries

After determining that the statutory “fair value” of a share of the common stock of Orchard Enterprises, Inc. (“Orchard”) was $4.67 in an appraisal proceeding brought by former common stockholders of Orchard, several of whom were represented by Berger Harris LLP attorney Jack Harris, the Delaware Court of Chancery rejected the parties’ competing motions for summary judgment in a subsequent fiduciary action on the issue of whether the merger price of $2.05 was financially fair under the entire fairness standard of review.

In In re Orchard Enterprises, Inc. Stockholder Litig., C.A. No. 7840-VL (Del. Ch. Feb. 28. 2014), the Court found that the appraisal value ($4.67) was evidence of the financial unfairness of the $2.05 merger price.  The Court noted that the fair price aspect of the entire fairness standard and the statutory fair value calculation for purposes of an appraisal action “call for equivalent economic inquiries.”  However, the Court acknowledged that the “fair price aspect of the entire fairness test is not itself a remedial calculation.”  Rather, the entire fairness test is a standard of review, and the fair process aspect of the unitary entire fairness test is flexible enough to accommodate the reality that a “fair price” may fall within a range of values.  Accordingly, the Court could determine based upon the evidence adduced at trial that defendants had met their entire fairness burden.  On the current record, the Court could not make a fairness determination.

A copy of the Court’s opinion in the appraisal action is available here.