Hedge Funds Lose Court Bid for Extra Cash in Ancestry.com Case
Hedge funds lose court battle over Ancestry.com shares
In a recent court ruling, hedge funds seeking extra cash for their shares of Ancestry.com Inc were denied by a Delaware judge. The ruling, which involved a private equity firm’s acquisition of the online family research site in 2012, sheds light on the increasingly popular hedge fund strategy known as “appraisal arbitrage.”
The private equity firm, Permira Advisers, paid a fair value of $32 per share for Ancestry.com, which was 40 percent above the market price at the time. Despite this, hedge funds Merion Capital, Merlin Partners, and Ancora Merger Arbitrage Fund exercised their appraisal rights and sought a higher price for their 1.4 million shares.
During the trial, the hedge funds’ expert argued for a price range between $42.81 and $47 per share, while Ancestry.com’s expert valued the stock at $30.63 per share. Ultimately, the judge, Sam Glasscock, ruled in favor of the merger price, stating that the private equity firm had paid a fair value for the company.
Although the hedge funds did not succeed in increasing the amount, the judge also declined to find fair value below the deal price. Additionally, the funds will collect interest, limiting their potential losses in the case.
Appraisal arbitrage cases, like the one involving Ancestry.com, have become a lucrative strategy for hedge funds. Despite the outcome of this particular case, experts in the field remain undeterred and continue to pursue such opportunities.
This ruling comes on the heels of another decision by Glasscock that could make it easier for funds to pursue appraisal arbitrage cases in the future. While the investors in this case may not have achieved their desired outcome, the strategy has proven to be profitable in the past, with some cases resulting in significant returns for hedge funds.
Ancestry.com declined to comment on the ruling, and attorneys for the investors have not yet responded to requests for comment. The decision highlights the complexities and risks involved in appraisal arbitrage, a strategy that continues to attract attention in the hedge fund industry.