United States District Court, N.D. Oklahoma
SFF-TIR, LLC; STUART FAMILY FOUNDATION, INC.; ALAN STUART 2012 GST FAMILY TRUST; STUART 2005 GST FAMILY TRUST; CELEBRATION, LLC; ANURAG AGARWAL; PETER BUCKLEY; VINCENT SIGNORELLO and RODNEY M. REYNOLDS, Plaintiffs,
CHARLES C. STEPHENSON, JR.; CYNTHIA A. FIELD; PETER BOYLAN, III; LAWERENCE FIELD; CYPRESS ENERGY PARTNERS-TIR, LLC; CEP CAPITAL PARTNERS, LLC; CYPRESS ENERGY HOLDINGS, LLC and TULSA INSPECTION RESOURCES, LLC, Defendants.
Jamison A. Diehl Akin Gump Strauss Hauer & Feld LLP New
York, New York and R. Stratton Taylor Toney Daniel Foster
Mark H. Ramsey Clinton Derek Russell Taylor Burrage Foster
Mallett Downs Ramsey & Russell Claremore Oklahoma and
Stuart Kagen Daniel A. Cohen Joshua C. Gillette Kyla Janine
Grant Kagen & Caspersen New York, New York Attorneys for
Frederic Dorwart Paul DeMuro Sarah Wishard Poston Nora Rose
O'Neill Fredric Dorwart Lawyers Tulsa, Oklahoma Attorneys
for the Defendants
MEMORANDUM OPINION AND ORDER
MATTER comes before the Court on the Plaintiffs'
Proposed Final Jury Instructions, filed July 27, 2017 (Doc.
319-1)(“Plaintiffs' Jury Instructions”). The
Plaintiffs' proposed Instruction No. 18 reads:
Another method of valuation about which you heard testimony
is the Leveraged Buyout Method, which is also referred to as
an “LBO model.” Mr. Wilcox used an LBO model.
An LBO model is not a methodology for determining the value
of a company. Instead, an LBO model determines the range of
prices that a potential buyer can pay and still achieve a
particular rate of return on its investment.
What a potential buyer using an LBO model would be willing to
pay diverges from “fair value” because (i) the
buyer needs to achieve a specified rate of return, and (ii)
because of limits on the amount of debt that the company can
support and that the potential buyer can use to finance the
As a result, use of an LBO model will undervalue the company
as a going concern. The fact that the amount that a
shareholder received may have been close to the highest price
that a bidder using an LBO model would be willing to pay does
not establish that the shareholder received “fair
value.” Because it is not possible to quantify the
exact degree of mispricing that results from use of an LBO
model, no weight should be given to a price determined using
such a model.
Jury Instructions at 32-33 (footnotes omitted).
support of the final sentence of their proposed Instruction
No. 18, the Plaintiffs cite In re Appraisal of Dell,
Inc., 2016 WL 3186538, at *51 (Del. Ch. 2016).
See Plaintiffs' Jury Instructions at 33. The
holding of In re Appraisal of Dell, Inc., however,
is more fact bound and case specific than the Plaintiffs'
sweeping instruction: “Because it is impossible to
quantify the exact degree of the sale process mispricing,
this decision does not give weight to the Final Merger
Consideration.” In re Appraisal of Dell, Inc.,
2016 WL 3186538, at *51. That the sale process in In re
Appraisal of Dell, Inc. used LBO models was only one of
several factors that rendered the merger consideration an
unreliable guide vis-à-vis fair value. See
2016 WL 3186538, at *29-37, *40-44. What is more, while the
outcome of the sale process was not “the most reliable
evidence” regarding fair value, it was
“sufficient to exclude the possibility, advocated by
the petitioners' expert, that the Merger undervalued the
Company by $23 billion.” 2016 WL 3186538, at *44.
Plaintiffs' proposed Instruction No. 18 suffers from
another, more fundamental flaw in that the Supreme Court of
Delaware has, in a recent case, disapproved of In re
Appraisal of Dell Inc.'s reasoning. In
re Appraisal of Dell, Inc. indicates that an LBO model
was unreliable vis-à-vis fair price, because
a financial sponsor determines whether and how much to bid by
using an LBO model, which solves for the range of prices that
a financial sponsor can pay while still achieving particular
IRRs. What the sponsor is willing to pay
diverges from fair value because of (i) the financial
sponsor's need to achieve IRRs of 20% or more to satisfy
its own investors and (ii) limits on the amount of leverage
that the company can support and the sponsor can use to
finance the deal.
2016 WL 3186538, at *29 (footnotes omitted). In DFC
Global Corp. v. Muirfield Value Partners, LP,
___ A.3d ___, 2017 WL 3261190 (Del. August 1, 2017), the
Supreme Court of Delaware assessed a similar line of
The Court of Chancery also found that it would not give
dispositive weight to the deal price because the prevailing
buyer was a financial buyer that “focused its attention
on achieving a certain internal rate of return and on
reaching a deal within its financing constraints, rather than
on [the company's] fair value.”
2017 WL 3261190, at *2 (quoting In re Appraisal of DFC
Glob. Corp., 2016 WL 3753123, at *22 (Del. Ch. July 8,