Supreme Court reverses Chancery ruling on value of payday loan company

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Leo Strine

The Delaware Supreme Court has reversed a Chancery Court ruling challenging the sales price  of payday lender DFC Global.

The ruling, written by Chief Justice Leo Strine,  stated that  Chancellor Andre Bouchard has broad authority to determine the price paid by a private equity firm under state law.

However, the Chancery decision on the value of DFC  was reversed in the  85-page decision that appeared to offer advice on future cases.

Strine wrote that “until the General Assembly wishes to narrow the prism through which the Court of Chancery looks at appraisal value in specific classes of mergers, this Court must give deference to the Court of Chancery if its determination of fair value has a reasonable basis in the record and in accepted financial principles relevant to determining the value of corporations and their stock.”

A Reuters story  noted that the decision  seemed to offer  arguments to unhappy  shareholders on future appeals of company valuations

The Chancery Daily newsletter described   the Supreme Court ruling as a   “challenging decision, in that it seems to depart from what has long been our understanding of  ‘‘fair value’ under Delaware’s appraisal statute.”

The case centered on the amount a  private equity firm paid for  DFC Global, a provider of the high-interest rate,  short-term “payday” loans that are illegal in many states.

The issue surfaced in Delaware when a payday lender was sued in Chancery Court for charging exorbitant interest rates and fees on a small loan issued to a hotel worker.

Following the ruling that nullified the charges,    the  General Assembly later passed legislation restricting payday loans rates and fees. Some lenders closed down their Delaware offices  after passage of the bill

The Supreme Court decision acknowledged that the stock price of DFC varied and made valuing the company more difficult,  due in part to investor concerns about the impact of regulations on payday lending.

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