The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

• Court: Court of Chancery of Delaware
• Decided: November 28, 2014
• Docket: CA 7668-VCN
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE

JOHN W. NOBLE 417 SOUTH STATE STREET VICE CHANCELLOR DOVER, DELAWARE 19901 TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179

November 28, 2014

Stephen P. Lamb, Esquire Kevin G. Abrams, Esquire Paul, Weiss, Rifkind, Wharton Abrams & Bayliss LLP & Garrison LLP 20 Montchanin Road, Suite 200 500 Delaware Avenue, Suite 200 Wilmington, DE 19807 Wilmington, DE 19801

Re: AM General Holdings LLC v. The Renco Group, Inc. C.A. No. 7639-VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC C.A. No. 7668-VCN Dates Submitted: July 31, 2014 and November 21, 2014

Dear Counsel:

The Renco Group, Inc. (“Renco”) and MacAndrews AMG Holdings LLC

(“MacAndrews AMG”) debate the value of AM General Holdings LLC

(“Holdco”). They have reached an impasse in their efforts to agree upon the Third

Appraiser to determine the appraised value as provided in Section 15.12 of

Holdco’s Limited Liability Company Agreement (the “Holdco Agreement”). AM General Holdings LLC v. The Renco Group, Inc. C.A. No. 7639-VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC C.A. No. 7668-VCN November 28, 2014 Page 2

Selection of a valuation expert in this context is difficult for two principal

reasons. First, the valuation is challenging because Holdco involves an operating

company in the global defense industry. Second, because of the wide-ranging

activities of the parties and their affiliates, finding a qualified appraiser without any

conflicts presents an obstacle bordering on insurmountable.1 Conflicts, some more

significant than others, appear to have frustrated selection from among the larger,

nationally respected firms whose qualifications could not be otherwise debated.

Each side has proposed two appraisal firms. The Court will choose from

among them. Each firm undoubtedly has personnel qualified to perform the job.

The parties agreed to select a “firm,” not an individual. Perhaps the concern was

depth and breadth of experience or the extent of the resources that could be

assigned to the task. Yet, some of the “firms” seem essentially to be operations of

their individual leaders who are former heads of the valuation practice at “Big

1 The Court is designating a Qualified Appraiser as the Third Appraiser in accordance with the Holdco Agreement. If the parties decide to reevaluate their firm and, perhaps, unforgiving positions on conflicts, a change that I do not anticipate, they are free to pursue that course and select a different Third Appraiser based on agreement and a mutual understanding of its implications. AM General Holdings LLC v. The Renco Group, Inc. C.A. No. 7639-VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC C.A. No. 7668-VCN November 28, 2014 Page 3

Four” accounting firms. But, with the difficulties in avoiding conflicts generally,

retention of a smaller “firm” which may not have the “caliber” of larger, but

unavailable, firms seems unavoidable.

Valuation Research Corporation (“Valuation Research”), proposed by

MacAndrews AMG, subject to a conflicts check, appears to be the firm most

closely meeting the standards agreed to by the parties. It has eight offices in the

United States and has conducted valuations in the United States and international

business communities for more than three decades. For example, its international

experience includes valuing the Panama Canal with its power generation activities

and transmission lines, the water utility system, the lock system, and the railroad

assets.

An order designating Valuation Research will be entered.

***

In addition, MacAndrews AMG contends that Renco’s Alternate Appraisal’s

critique of its Initial Appraisal is beyond the scope allowed in the valuation AM General Holdings LLC v. The Renco Group, Inc. C.A. No. 7639-VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC C.A. No. 7668-VCN November 28, 2014 Page 4

provisions of the Holdco Agreement.2 Part of an appraiser’s (in this context,

essentially an “arbitrator’s”) function is determining what may properly be

considered (and the weight to be given to it). The risk that the Third Appraiser

would be misled or that MacAndrews AMG would be prejudiced appears minimal.

Thus, an order denying MacAndrews AMG’s motion to exclude or to redact

portions of Renco’s Alternate Appraisal will be entered.

Very truly yours,

/s/ John W. Noble

JWN/cap cc: Thad J. Bracegirdle, Esquire Joel E. Friedlander, Esquire Register in Chancery-K

2 See MacAndrews AMG Hldgs. LLC’s Br. in Opp’n to The Renco Gp., Inc.’s Appl. for Appt. of a Third [Appraiser] and in Supp. of its Cross-Mot. to Exclude Inappropriate Material from the Alternate Appraisal at 13-15.