IN RE: Appraisal of Panera Bread Company

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE APPRAISAL OF PANERA )
BREAD COMPANY ) C.A. No. 2017-0593-MTZ
)

MEMORANDUM OPINION
Date Submitted: October 7, 2019
Date Decided: January 31, 2020

Samuel T. Hirzel, II, Elizabeth A. DeFelice, and Melissa N. Donimirski,
HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware;
Steven M. Hecht, Michael T.G. Long, Jarett N. Sena, Natalie F. Dallavalle, Frank
T.M. Catalina, Edoardo Murillo, and Jonathan M. Kass, LOWENSTEIN
SANDLER LLP, New York, New York; Attorneys for Petitioners.

Paul J. Lockwood, Jennifer C. Voss, Jenness E. Parker, Alyssa S. O’Connell,
Kaitlin E. Maloney, Daniel S. Atlas, Bonnie W. David, and Andrew D. Kinsey,
SKADDEN ARPS SLATE MEAGHER & FLOM LLP, Wilmington, Delaware;
Attorneys for Respondent.

Zurn, Vice Chancellor.
 In this appraisal action, I must determine the fair value of each share of the

subject company on the closing date of its acquisition. I find that the process by

which the company was sold bore several objective indicia of reliability, which were

not undermined by flaws in that process. I therefore find that the deal price is

persuasive evidence of fair value, and give no weight to other valuation metrics. I

deduct some synergies, but find others were not adequately proven. I undergo that

synergies analysis solely to fulfill my statutory mandate, rather than to effectuate

any transfer of funds between the parties, because the company prepaid the entire

deal price and has no recourse for a refund under the appraisal statute.

I. BACKGROUND1

This appraisal action generated an extensive record. During six days of trial,

the parties introduced 1,336 exhibits and lodged seventeen depositions in evidence.2

1
Citations in the form “PTO ¶ ––” refer to stipulated facts in the pre-trial order. See Docket
Item (“D.I.”) 108. Citations in the form “[Name] Tr.” refer to witness testimony from the
trial transcript. Citations in the form “[Name] Dep.” refer to witness testimony from a
deposition transcript. Citations in the form “JX –– at ––” refer to a trial exhibit.
2
See D.I. 103, Ex. 1. The subset of exhibits the parties relied on is set forth on the schedule
of evidence. See D.I. 148, Ex. A; D.I. 151.

1
Five experts and six fact witnesses testified live. These are the Court’s findings

based on a preponderance of the evidence.

Respondent Panera Bread Company (“Panera” or the “Company”) is a

national bakery-cafe concept in the United States and Canada.3 Panera is a

corporation organized and existing under the laws of Delaware, with headquarters

in St. Louis, Missouri.4 Until July 18, 2017, Panera’s stock was listed on the

NASDAQ stock exchange under the symbol “PNRA.”5

On that date, JAB Holdings B.V. purchased Panera for $315.00 per share. 6

That entity is a private limited liability company incorporated under the laws of the

Netherlands that indirectly has a controlling interest in JAB Holding Company,

LLC.7 JAB Holding Company, LLC is a private limited liability company

incorporated under the laws of Delaware and headquartered in Washington D.C. that

indirectly has held a controlling interest in Panera since the acquisition.8 JAB

Holding Company S.à.r.l. has an ultimate controlling interest in JAB Holdings B.V.,

3
PTO ¶¶ 48, 89.
4
Id. ¶ 48.
5
Id. ¶ 49.
6
Id. ¶ 1.
7
Id. ¶¶ 66–67.
8
Id. ¶ 65.

2
JAB Holding Company, LLC and Panera.9 I refer to all of these entities collectively

as “JAB.”

In the wake of JAB’s acquisition, certain dissenting Panera stockholders

(“Petitioners” or “Dissenting Stockholders”) are entitled to an appraisal of the fair

value of their Company shares in accordance with their demands.10 Petitioners hold

785,108 shares of Panera’s common stock.11 Petitioners include Short Hills Capital

Partners, holding 35,800 shares of Panera common stock;12 Weiss Asset

Management, including 2017 Arlington, LLC, holding 154,669 shares of Panera

common stock;13 Canyon International LLC, holding 31,794 shares of Panera

common stock;14 and Yellowstone Global LLC, holding 47,692 shares of Panera

common stock.15 Each of the Petitioners demanded appraisal before the vote on the

merger, held the appraisal shares through the merger date, and maintained their

appraisal demand.

9
Id. ¶ 68.
10
Id. ¶ 20.
11
Id. ¶ 22.
12
Id. ¶ 26.
13
Id. ¶ 32.
14
Id. ¶ 37.
15
Id. ¶ 42.

3
 Relevant non-parties include Panera board members Domenic Colasacco,

Fred K. Foulkes, Larry J. Franklin, Diane Hessan, Thomas E. Lynch, William W.

Moreton, Ronald M. Shaich, Mark Stoever, and James D. White.16

Shaich founded Panera in 1981.17 He served on the board from 1981 to

December 2018 in various capacities, including Chairman, Co-Chairman, Executive

Chairman, and Non-Executive Chairman.18 Shaich served as Chief Executive

Officer from 1984 to May 2010, when he stepped back from the Company to

co-found an organization called “No Labels,” which he hoped would reduce

partisanship in American politics.19 During this time, Shaich remained Panera’s

largest stockholder and Executive Chairman, and Moreton served as CEO.20 In

2012, Moreton had a family issue and asked Shaich to return to a greater leadership

position.21 Shaich agreed and served as Co-Chief Executive Officer, along with

Moreton, from March 2012 to August 2013.22 At that time, Moreton stepped down

as Co-Chief Executive Officer, and Shaich resumed his role as sole Chief Executive

16
Id. ¶ 50. These directors served from January 2016 until the merger closed.
17
Id. ¶ 51.
18
Id.
19
Id.; Shaich Tr. 936:2–937:10.
20
Shaich Tr. 937:11–938:1.
21
Id. 940:12–21; accord PTO ¶ 51.
22
PTO ¶ 51.

4
Officer until January 1, 2018.23 The market and the restaurant industry both

recognize Shaich as a visionary.24

Moreton joined Panera’s board in May 2010, after serving as Executive Vice

President and Chief Financial Officer from October 1998 to March 2003 and

Executive Vice President and Co-Chief Operating Officer from November 2008 to

May 2010.25 Moreton also served as President and Co-Chief Executive Officer from

March 2012 to August 2013, Chief Financial Officer (Interim) from August 6, 2014

to April 15, 2015, and Executive Vice Chairman from August 2013 to July 18,

2017.26

Colasacco, the lead independent director, served as an outside director along

with directors Hessan, Foulkes, Franklin, Lynch, Stoever, and White.27

Panera’s relevant management includes Blaine Hurst, who began serving as

Panera’s Chief Executive Officer after Shaich left that post in January 2018.28 Prior

to that time, Hurst served as Executive Vice President and Chief Transformation and

23
Id.; see also JX0005.
24
PTO ¶ 98.
25
Id. ¶ 52.
26
Id.
27
See id. ¶¶ 53–59.
28
Id. ¶ 60.

5
Growth Officer from December 2010 to December 2016.29 Then, Hurst served as

Panera’s President from December 2016 to January 2018.30

Michael Bufano has served as Panera’s Chief Financial Officer, since April

2015.31 Bufano also served as the Vice President of Planning from July 2010 to

August 2014.32

Andrew Madsen was Panera’s President from May 2015 to December 9, 2016,

when he left the Company.33

A. Shaich Founds Panera And Leads It Through Unmatched Growth.

In 1980, Shaich founded a single 400-square-foot cookie store.34 That store

would eventually become Panera. In 1982, Shaich merged the cookie store with a

small regional bakery called Au Bon Pain.35 That entity purchased the Saint Louis

Bread Company in 1987.36 Shaich took this company public in 1991,37 rebranded

the Saint Louis Bread Company as Panera in 1997, and divested the Au Bon Pain

29
Id.
30
Id.
31
Id. ¶ 61.
32
Id.
33
Id. ¶ 62.
34
Id. ¶ 86; Shaich Tr. 924:4–17.
35
PTO ¶ 86.
36
Id.
37
Id.; Shaich Tr. 926:20–927:3.

6
division in 1999.38 After the divestiture, Shaich changed the company’s name to

Panera Bread Company.39 After divesting Au Bon Pain, Panera stock traded at $6.00

per share.40

Panera pioneered a new restaurant segment called “fast casual,” which found

a niche between “quick service restaurants like McDonald’s and Wendy’s and

restaurants like that and casual dining, full sit-down service.”41 From 2000 to 2010,

Panera expanded rapidly into a national restaurant chain.42 Panera operated in three

segments: company bakery-cafe operations, franchise operations, and fresh dough

and other product operations.43 By 2004, Panera’s stock was trading around $30.00

per share, and by 2010, it was trading around $70.00 per share.44

Despite the Company’s growth, by 2010 or 2011, Shaich felt “great distress”

because Panera’s same store sales were weakening and market share gains slowed.45

38
PTO ¶ 86.
39
Id.
40
JX0400 at 17.
41
Moreton Tr. 710:23–711:12.
42
Moreton Tr. 714:5–20, 732:11–24. From 2007–2009, Panera also expanded by acquiring
Paradise Bakery & Café, a Phoenix, Arizona-based concept with over 70 locations in 10
states. PTO ¶¶ 87–88.
43
PTO ¶ 92.
44
See JX0400 at 18.
45
Shaich Tr. 938:2–16.

7
Increasingly, Panera faced competitive pressures and needed to differentiate for

future growth.46 In response to these pressures, Shaich spent his time as Executive

Chairman focusing almost exclusively “on a range of strategic and innovation efforts

for Panera.”47 During this time, Shaich wrote “the Amazon memo” on how he would

compete with Panera if he were not part of the Company.48 His vision focused on

changing the guest experience, creating a new ordering system, and providing a

delivery service.49 After discussing these initiatives with Moreton, Shaich led the

effort to prototype these ideas during the 2010–2012 period before re-assuming a

management post as co-CEO in 2012.50

In 2013, Panera signaled to the market that it was “deploying significant

transaction-driving initiatives.”51 By early 2014, Fortune magazine featured

Panera’s “big bet on tech,” detailing how Shaich’s early prototypes had developed

into new company initiatives.52 After launching that technology in fourteen cafes,

46
Id. 938:2–939:22.
47
PTO ¶ 102.
48
Shaich Tr. 938:7–939:8.
49
Id. 938:7–939:10.
50
Id. 938:7–939:16; see also PTO ¶ 51; Moreton Tr. 742:23–743:8.
51
JX0006 at 1.
52
See JX0007 (examining Panera 2.0 and the associated costs of the investments); see also
JX0008 (CheatSheet article detailing the purchase of a “to-go bread bowl via smart
phone”).

8
the Company formally announced the Panera 2.0 initiative in April 2014.53 Panera

2.0 offered “a series of integrated technologies to enhance the guest experience”54

through “new mechanisms for ordering, payment, food production, and, ultimately,

consumption.”55 Panera 2.0 enhanced ordering through Rapid Pick-Up, fast lane

kiosks, and online/mobile ordering.56 Panera also committed to “operational

excellence” with new production equipment and systems to increase capacity and

accuracy.57 Along with these changes, Panera focused on “activat[ing] innovation

in store design.”58 To adopt these initiatives, Hurst “create[d] a ‘digital flywheel’

whereby all systems and consumer touchpoints—point of sale (PoS), back of house,

integrated customer data, big customer data, one-to-one marketing—are

interconnected for operational gain.”59

These initiatives rolled out in stages. In 2014, the Company kicked off Panera

2.0 with Rapid Pick-Up, an advanced ordering system.60 Over the next two years,

53
JX0009 at 1–2.
54
Id. at 1.
55
Id. at 2.
56
Id. at 1–2.
57
Id. at 2.
58
Shaich Tr. 946:3–8.
59
JX2009 at 2; accord JX0564 at 79.
60
PTO ¶¶ 113–14.

9
the Company rolled out the remaining Panera 2.0 initiatives to all company-owned

bakery-cafes.61

Panera developed other initiatives during this period of innovation. In 2013,

the Company rolled out two initiatives including Panera at Home, providing

consumer packaged goods, as well as Panera catering hubs, which were attached to

bakery-cafes.62 In 2015, Panera launched its “Food As It Should Be” campaign,

developing “clean food” without “artificial colors, flavors, preservatives, and

sweeteners.”63 In 2016, Panera rolled out its national delivery program.64

While leading Panera through these initiatives, in early February 2015, Shaich

informed the board that he wanted to step away from Panera and pursue other

endeavors.65 Shaich had returned to Panera when Moreton needed him. And

although Shaich extended his time with the Company through 2015, he did not want

to remain at Panera forever.66 Shaich explained to the board that after working on

innovations as Executive Chairman during the 2010 to 2012 period, he “had come

back to transform” Panera and felt he had “done [his] work in getting [Panera 2.0]

61
Id. ¶¶ 115, 121, 126.
62
Id. ¶¶ 106–109.
63
Shaich 945:19–23.
64
PTO ¶ 122.
65
Moreton Tr. 718:21–719:11.
66
Shaich Tr. 1017:23–1018:10.

10
going.”67 The board outlined a succession plan during a board meeting held on

February 26, 2015.68 The identified succession candidate, Madsen, became Panera’s

president in May 2015 with the intention of replacing Shaich as CEO in 2016.69 But

the board did not view Madsen as a suitable replacement,70 so Shaich stayed on as

CEO. Shaich annually reminded the board of his desire to leave.71 At the time of

the merger, Shaich owned approximately six percent of Panera’s outstanding stock.72

B. Panera Tracks Its Initiatives Through A Five-Year Strategic Plan
And Five-Year Financial Model.

In May 2015, management assembled all of Panera’s new initiatives into a

strategic plan (the “Five-Year Strategic Plan”).73 To track the financial effects of

these initiatives, management also created a five-year financial model (the “Five-

Year Financial Model”) that tracked “between 15 and 30 key initiatives and many

projects underneath each of them that we had various assumptions on, how they

would perform, how they would roll out” and forecasted five years of future results.74

67
Id. 1017:23–1018:10.
68
JX0010 at 3; accord Moreton Tr. 718:14–719:11.
69
PTO ¶ 62.
70
Moreton Tr. 800:3–17.
71
Shaich Tr. 1017:23–1018:10.
72
Id. 1026:11–24.
73
PTO ¶ 117; JX0315; Moreton Tr. 724:4–725:6.
74
Moreton Tr. 724:18–22, 768:19–769:8; accord PTO ¶ 118.

11
Management based the Five-Year Financial Model on the Five-Year Strategic Plan

and would evaluate them side-by-side “to really understand what the vision involved

and the costs involved in what we saw.”75 This Five-Year Financial Model operated

as a “roadmap” that management updated every six months and that the board

discussed, at least in part, at every meeting.76

At its core, the 2015 Five-Year Financial Model set a goal to double earnings

per share over the next five years and “re-engage” double-digit earnings growth,

including projected earnings before interest, tax, depreciation and amortization

(“EBITDA”) of nearly $750 million by 2019.77 Shaich recognized that “[f]ew

companies have taken on as audacious a path to renewal.”78

75
Moreton Tr. 724:4–725:6.
76
PTO ¶ 118; see also Moreton Tr. 734:19–735:4, 764:17–765:8; Shaich Tr. 1015: 19–21;
Colasacco Dep. 197:19–198:19. Petitioners object to Respondent’s use of Colasacco’s
deposition testimony at trial. See D.I. 108 ¶ 216; D.I. 131; D.I. 148 Ex. A at 9. Under
Court of Chancery Rule 32, “[t]he deposition of a witness, whether or not a party, may be
used by any party for any purpose if the Court finds . . . that the witness is out of the State
of Delaware, unless it appears that the absence of the witness was procured by the party
offering the deposition.” Ct. Ch. R. 32(a)(3)(B). Colasacco is a Massachusetts resident
and Petitioners do not contend that Panera procured Colasacco’s absence from Delaware.
D.I. 119 at 24:2–14, 25:9–11. Petitioners argue that even if the testimony could come in
under Rule 32, Delaware Rule of Evidence 802 precludes this testimony. See Trial Tr. at
642:11–16. Rule 32 testimony is not an out of court statement, but treated “as though the
witness were then present and testifying.” Ct. Ch. R. 32(a). Colasacco’s testimony is
thereby admissible under Rule 32.
77
JX0315 at 3–4; accord Shaich Tr. 941:10–943:18 (“So I had a goal of sustained double-
digit earnings but reengaging this company and moving it forward—it was mature—and
taking it to the next place.”).
78
JX0315 at 131; JX0134 at 118.

12
 Some board members were skeptical. Moreton described the Five-Year

Financial Model as “what’s classically called a hockey stick projection” that faced

“healthy skepticism in the board.”79 Lynch wrote to Shaich in October 2016, “I

worry, though not with a lot of basis, that we are overestimating our future earnings

power. We are now in a negative 3 transaction comp environment and I am

concerned that we could be overestimating our ability to fight this headwind.”80

Moreton recognized management risk-adjusted the Five-Year Financial Model “in

part,” but “major” risk remained around execution.81 Colasacco considered Panera’s

Five-Year Strategic Plan as “not impossible, not a lie, not a bad faith effort in any

way,” but “one possible range of scenarios that could play out[.]” 82 Some analysts

79
Moreton Tr. 729:2–20; accord Colasacco Dep. 217:3–219:15 (understanding that “if it
worked I would have considered it a home run,” but recognizing “there aren’t many
companies that can do” “25 percent per annum compounded for five years,” so the model
“had some risk attached to achieving it”).
80
JX0228 at 2 (emphasis in original).
81
Moreton Dep. 218:23–219:20 (“So the risk then switches to: Is it possible? Yes. Is it a
guarantee? No. And what’s the major . . . risk . . . is around execution. So . . . that’s
really the time period that we’re in and how Panera saw it during my time.”). Petitioners
identify the Company’s 90% confidence in its ability to achieve several initiatives in the
model. See JX0616 at 29. In using this to cast the Five-Year Financial Model as risk
adjusted, however, Petitioners improperly conflate the model’s “comp buffer”—designed
to learn how different initiatives overlap—with risks associated with competition or
execution. See Moreton Tr. 740:4–741:15, 860:15–861:7.
82
Colasacco Dep. 217:3–219:15.

13
agreed: “[W]e remain on the sidelines as PNRA’s stock appears to incorporate the

benefits of its strategic initiatives and the outlook is not without risks.”83

C. Investors React, And Panera Weighs Its Options.

In reaction to the Five-Year Strategic Plan, an investment fund called Luxor

Capital threatened a proxy contest because it opposed the “very significant capital

spending” necessary to support the plan.84 The board engaged Goldman Sachs &

Co. LLC (“Goldman”) in March 2015 to advise it in a strategic review of potential

opportunities to maximize stockholder value.85 On June 25, 2015, Goldman

presented potential strategic alternatives alongside valuation scenarios under the

Five-Year Strategic Plan.86

Consistent with the Five-Year Financial Model, Goldman “assume[d] 100%

implementation success with no probability weighting adjustment.”87 For this

reason, Goldman called the Five-Year Strategic Plan “aggressive” because

“everything would have to go exactly as was foreseen,” which “[t]hey didn’t think

83
JX0104 at 1; see also JX0343 at 19 (analysts acknowledging that Panera’s strategic
initiatives were “a very ambitious target”).
84
Moreton Tr. 720:18–721:20; Colasacco Dep. 65:19–66:20.
85
PTO ¶ 75.
86
See JX0019 at 18–25; PTO ¶ 120.
87
See, e.g., JX0019 at 19–20, 24, 33, 34, 41, 42, 44, 50, 52, 56.

14
[] was very likely.”88 Goldman advised that Panera’s “growth initiatives were too

early on in the game for the market . . . to give [Panera] full credit for [the Five-Year

Strategic Plan].”89 Goldman evaluated a potential sale and advised that a financial

sponsor would not have interest in Panera,90 but identified a “limited number of

potential strategic buyers,” with Starbucks as the most likely. 91 At the end of the

meeting, the board determined

that while the Company would, as it had done in the past,
continue to observe the markets and consider activities in
the best interest of shareholders on an ongoing basis, given
current conditions it was not in the best interest of the
Company and its stockholders to engage in a process to
initiate and pursue a strategic transaction or solicit interest
from potential purchasers at this time.92

After consulting with Goldman, Panera agreed to some of Luxor’s demands.93

Luxor dropped their remaining demands after Panera “convince[d] them that [its]

88
Moreton Tr. 773:9–774:5.
89
Id. 770:24–771:15.
90
JX0019 at 18; Shaich Tr. 956:4–22; Moreton Tr. 770:24–771:19.
91
See Shaich Tr. 955:24–957:7, 958:1–19; accord Moreton Tr. 770:24–771:19.
92
JX0019 at 2.
93
See Moreton Tr. 722:11–19 (“[W]e agreed to increase our share buyback, again a
program we’d had going on for a long time, but we agreed to buy back $500 million worth
of shares over a 12-month period. We agreed to evaluate selling company stores to
franchisees without a specific number.”).

15
G&A actually was average to low for the industry as a whole, and the technology

investments were necessary for initiatives.”94

D. Panera Counteracts Failures And Plants Seeds For Future
Rewards.

In 2016, following the adoption of the Five-Year Strategic Plan, Panera

reduced its estimate for 2019 EBITDA by almost $128 million as “revenues hadn’t

increased in line with” expectations and the Plan was not “going quite as smoothly

as [Panera] had hoped.”95 Panera offset the initiatives’ high costs by orchestrating

share buybacks, refranchising, and implementing nonstrategic cost reduction.96

In the wake of this setback, Shaich led efforts to publicize the Five-Year

Strategic Plan to generate market recognition. Through “hundreds”97 of

presentations, Shaich shared Panera’s plan of “sustained double-digit EPS earnings

growth.”98 The market responded and gave Panera “a great deal of credit for the

initiatives already done.”99 Panera’s stock rose to $214.54 by July 2016.100

94
Id. 722:11–23.
95
Id. 776:5–778:16, 778:17–779:2.
96
Id. 785:17–786:8; JX0238 at 33.
97
Shaich Tr. 948:6–13, 960:8–961:3; see, e.g. JX0194 at 1; JX0192 at 5, 11; JX2028 at 3,
17; JX0032 at 51; JX0041 at 5, 22; JX0064 at 2; JX0260 at 4–5, 15; JX0331 at 3–4; JX0345
at 4–5, 14; JX0029; JX1039; JX0063 at 3; JX0304.
98
JX0063 at 3.
99
Moreton Tr. 792:4–13.
100
JX0104 at 1.

16
 E. Panera and Shaich Weigh Their Options.

In the midst of Shaich’s PR campaign, Shaich received an unusual call from

Starbucks CEO Howard Schultz, proposing a visit.101 Shaich discussed the visit with

Colasacco and other board members, explaining, “Howard doesn’t come up on a

Saturday afternoon for just anything. Maybe he [i]s interested in a transaction.”102

To prepare, Shaich asked Goldman for an updated comparison of selected restaurant

companies that Goldman had presented the year before in 2015.103 This comparison

included updated financial metrics for Starbucks and other restaurants in the fast

growth, quick service, and casual dining segments.104

When Schultz and Shaich met on July 31, 2016, Schultz proposed a

collaboration between Starbucks and Panera “whereby Panera would provide food

to Starbucks for lunch and breakfast and [Starbucks] would upgrade [Panera’s]

coffee program.”105 After the meeting, Shaich updated Moreton, Colasacco, and

Lynch.106 Lynch viewed this as “[t]he first step of the dance,” so that Starbucks

101
Shaich Tr. 965:11–966:5; accord Moreton Tr. 793:14–22.
102
Shaich Tr. 967:13–19.
103
JX0111.
104
See id. at 4–5.
105
See JX0110; JX0118; JX0772 at 56; Moreton Tr. 793:14–22.
106
JX0116; JX0118; JX1012; accord Shaich Tr. 968:22–969:5.

17
could pursue “a potential acquisition attempt by Starbucks of Panera.”107 Colasacco

commented that the proposed collaboration was “[c]ertainly worth exploring further,

though raises many questions.”108 And Moreton thought it was “interesting . . . even

if not tying every thing up in a nice bow.”109

At the August 2 board meeting, the board reviewed elements of the Five-Year

Strategic Plan and Five-Year Financial Model, per usual.110 During the executive

session of that meeting, Shaich informed the board about Starbucks’ proposed

collaboration.111 Moreton characterized the board’s response by explaining, “if

[Starbucks] wanted to take advantage of our food and things, the best way to do that

would be to acquire the company.”112 With that directive, Shaich had a new focus

for future conversations with Schultz.113

Schultz had invited Shaich to Seattle to visit Starbucks’ roastery that fall;114

the teams met October 4 through 5.115 Starbucks came to discuss a joint venture,

107
JX0118; Shaich Tr. 969:17-970:1.
108
JX1012.
109
JX0116.
110
See JX0122 at 2; JX0128.
111
JX0116; JX0122 at 1; JX0125 at 4; accord Moreton Tr. 794:8–796:8.
112
Moreton Tr. 796:3–8.
113
See id. 796:9–17.
114
See JX0239 at 2–3.
115
See JX0156; JX0153; accord Shaich Tr. 970:14–21.

18
with Starbucks selling Panera’s food and Panera selling Starbucks coffee.116 Shaich

used this opportunity to attempt to solicit an offer.117 Both Shaich and Schultz

discussed their companies’ “very intimate strategic plans.”118 During the visit,

Shaich pitched Schultz the Five-Year Strategic Plan.119 On October 26, Shaich

rejected Schultz’s joint-venture idea, but floated the idea that Starbucks could

purchase Panera.120 Schultz responded: “we’re really interested in this. Let’s get a

group of people to work on it.”121

Moreton worked with Shaich to interface with Starbucks and help conduct

financial analyses.122 In November, the companies discussed their shared goal “to

determine whether [the] companies can unlock significant value by combining.”123

Panera proposed EBITDA and synergies figures for the combined companies, which

Starbucks generally found reasonable.124 Starbucks took this analysis and ran the

116
See JX0156 at 4.
117
Shaich Tr. 970:6–972:8.
118
Id. 971:20–972:8.
119
Id. 970:14–21.
120
JX0197; accord Shaich Tr. 972:12–973:3.
121
Shaich Tr. 973:4–16.
122
JX0243; JX0250; Moreton Tr. 797:2–798:22; Shaich Tr. 974:2–10.
123
JX0243.
124
See JX0250; Moreton Tr. 798:6–17.

19
numbers internally.125 At the end of November,126 Schultz called Shaich to explain

that after giving it “some serious thought,”127 Starbucks was “not going forward”

with the transaction.128 Although Starbucks viewed the combination as a “pretty

good idea,” Starbucks could not “get to [Panera’s] public market price, let alone pay

a premium”129 and “there were other things going on within Starbucks.”130 The

parties did not discuss any further.131

In tandem with Panera’s conversations with Starbucks, in August 2016,

Shaich acted on his own initiative and asked Goldman to facilitate an introductory

meeting with JAB.132 Goldman inquired after JAB’s CEO Olivier Goudet,133 but

JAB postponed meeting with Panera until “early the next year”134 because JAB was

busy pursuing an acquisition that fall.135

125
Moreton Tr. 796:21–797:1.
126
JX0266; JX0263.
127
Shaich Tr. 973:4–11.
128
Id. 975:15–24.
129
Id. 974:11–22, 975:15–976:10; accord JX0625 at 4 (“There were conversations with
Starbucks last year, they ultimately declined to proceed citing that Panera was trading too
richly (and it has since only traded up).”); JX0772 at 56; Moreton Tr. 798:23–799:10.
130
Shaich Tr. 976:1–4.
131
Moreton Tr. 799:24–800:2.
132
Shaich Tr. 976:11–23; accord Bell Tr. 1143:12–15.
133
Bell Tr. 1143:4–22.
134
Id. 1143:16–22.
135
Id. 1143:12–22; accord Shaich Tr. 976:24–977:6.

20
 F. Panera Reaches An “Inflection Point,” And Shaich Engages With
JAB.

Although Panera continued to face competitive pressures, it experienced

impressive growth and success with its initiatives. Panera’s stock price rose from

$170.00 per share in 2014 to $210.00 per share in early December 2016.136 As of

October 2016, Panera was the ninth most valuable restaurant company in America

with a market capitalization of $4.5 billion.137 Panera completed its Panera 2.0

rollout for company-owned bakery-cafes by the end of 2016.138 And by the end of

2016, Panera served approximately 9 million customers per week, making it one of

the largest food service companies in the United States.139

By January 13, 2017, Panera removed all of its “No No List” ingredients in

pursuit of its “clean food” goal.140 Panera hit another benchmark on February 8,

2017, when MyPanera accounted for 51% of the Company’s transactions, becoming

the largest customer loyalty program in the restaurant industry.141 Other Panera 2.0

136
Moreton Tr. 792:4–13; accord Shaich Tr. 976:5–10; JX0631 at 10.
137
JX1041 at 4.
138
PTO ¶ 126.
139
Id. ¶ 91.
140
Id. ¶ 127; JX0306.
141
PTO ¶ 129. Panera completed rollout of its MyPanera customer loyalty program in
November 2010. See JX0003.

21
initiatives experienced success, with digital orders representing 26% of sales142 and

the Rapid Pick-Up Program representing about 9% of sales.143

On February 7, 2017, Shaich announced 2017 to be Panera’s “inflection

point”144: “[w]ith peak investments and significant scale behind us, we are now

focused on completing the rollout of our initiatives and reaping the benefits.” 145 In

particular, “[t]he company has guided to double digit EPS growth for 2017.”146 The

market reacted positively to this announcement and Panera’s stock rose $20.00 that

day.147

In this positive environment, Shaich prepared to meet JAB’s Chief Executive

Officer, Olivier Goudet, and Head of M&A, David Bell.148 Shaich prepared for the

meeting with Goldman, who arranged his introduction to JAB.149 Shaich informed

some of Panera’s directors before the meeting, and Colasacco helped Shaich gather

JAB’s public information.150 JAB hosted Shaich at its Washington, D.C. office on

142
JX0741 at 1.
143
JX0359 at 4.
144
JX0331 at 3–4.
145
JX0342 at 7.
146
JX0129 at 1.
147
See Moreton Tr. 801:20–21; JX0364 at 1; JX0342 at 7.
148
JX0334.
149
Shaich Tr. 976:11–977:6; accord JX0318; JX0334.
150
See Shaich Tr. 977:17–978:7; JX0338.

22
February 9.151 During the meeting, Shaich presented Panera’s standard external

investor presentation.152 Bell interpreted the presentation as a way to try to entice

JAB to come and make an offer for Panera.153 During his pitch, Shaich discussed

his thirty-year career at Panera, but was “very uncertain” about his personal plans.154

Shaich saw that Goudet’s eyes lit up as Shaich discussed Panera.155

On Friday, February 24, Shaich, Goudet, and Bell had a follow-up phone

discussion during which JAB expressed its interest in acquiring Panera.156 The next

day, Shaich and Colasacco met to discuss JAB’s expression of interest. 157 At this

time, Shaich did not engage a financial advisor or engage in negotiations.158 Shaich

planned to inform the rest of the board at the upcoming Wednesday, March 1 board

meeting.159

151
PTO ¶ 130.
152
See JX0374; PTO ¶ 130.
153
Bell Tr. 1147:11–1148:8.
154
Id. 1148:9–22.
155
Shaich Tr. 1043:15–1043:24.
156
PTO ¶ 131.
157
See JX0287 at 9; accord Shaich Tr. 980:11–981:4; 1045:15–22.
158
Shaich Tr. 1044:5–1044:24.
159
PTO ¶ 131; JX0407 at 1; JX0408 at 3–4.

23
 At that board meeting, Shaich informed the full board of JAB’s interest.160

Shaich did not mention that he had initiated the conversation with JAB.161 The board

discussed Shaich’s introductory meeting and conversations with JAB, as well as

JAB’s potential interest in an acquisition of the Company.162 “[T]he Board

authorized Mr. Shaich to continue conversations with JAB and to report back to the

Board with an update as to the discussions and the status of any offer.”163 At that

time, the board did not retain a financial advisor, as it had not received a formal

offer.164

At this same meeting, the board reviewed 2016 financial results and tracked

them against the Five-Year Strategic Plan and the projections in the Five-Year

Financial Model.165 Panera management typically updated the Five-Year Financial

160
JX0408 at 3–4.
161
Shaich Tr. 1048:2–1048:17.
162
PTO ¶ 131; JX0408 at 3–4.
163
PTO ¶ 131; JX0408 at 4.
164
Shaich Tr. 984:14–23 (“I don’t think anybody on the board, myself or anybody on the
board would have thought to bring an investment banker in. We had been through this
kind of process before, and bankers are very expensive, and we had no offer. So I think
we needed to understand, what was JAB going to say.”); accord Moreton Tr. 804:18–
805:1; Colasacco Dep. 138:18–139:15.
165
See JX0407 at 47–102; JX0408 at 1 (“The agenda for the Board of Directors meeting
included the following matters: administrative matters, Special Focus topics, including a
review of the 2016 Key Initiatives, 2017 Key Initiatives and financial plan and related
business strategy updates, review of financial results . . . .”).

24
Model every spring and fall since May 2015.166 In March, management updated the

Five-Year Financial Model in preparation for merger discussions with JAB.167

G. JAB Makes An Offer, And Both Parties Secure Advisors.

On March 10, 2017, Shaich met with Bell and Goudet in Washington D.C.168

JAB offered to acquire Panera at a price of $286.00 per share in cash.169 At this

time, Panera’s stock was trading at $234.91; the offer represented a 21.7%

premium.170

JAB was a serial acquirer that maintained a “playbook” for their

acquisitions.171 Following that playbook, JAB conditioned their offer to Panera on

(i) a confidentiality provision; (ii) a public support measure for Shaich and certain

affiliates; (iii) a no-shop provision with a fiduciary out; (iv) matching rights; and (v)

a 4.0% termination fee.172 JAB’s terms did not include a financing or regulatory

condition.173 JAB expressed the desire and ability to sign on April 7, 2017, with an

166
PTO ¶ 118; Moreton Tr. 780:24–781:9, 859:4–16.
167
Moreton Tr. 828:22–830:18.
168
PTO ¶ 132.
169
Id.
170
JX0631 at 6.
171
Bell Tr. 1107:24–1108:22; Shaich Tr. 1039:22–24.
172
PTO ¶ 132.
173
Id.

25
announcement on April 10, 2017.174 At trial, Bell explained the “playbook.”175

Regarding the deal’s speed, JAB was “not interested in a protracted negotiation that

results in significant management distraction, so they always go very quickly.”176

Because of this short timeline, JAB also never discusses post-merger leadership roles

during negotiations.177 Bell also explained that a bilateral deal is part of the JAB

playbook in part because it typically leads to the lowest price.178

JAB hired Ernst & Young in March 2017 to conduct their due diligence

review of Panera.179 JAB conducted their diligence in five days because Panera’s

public information and “transparency is off the charts.”180 During the process, Bell

expressed satisfaction with the smooth diligence and was “really impressed by the

speed and quality of the data.”181 He also noted that Panera was one of the “cleanest

companies they have ever seen.”182

174
Id. ¶ 133.
175
Bell Tr. 1104:2–1106:9, 1107:24–111:8.
176
JX0581.
177
Bell Tr. 1109:17–1111:8.
178
Bell Dep. 49:9–14.
179
PTO ¶¶ 79–80.
180
JX0581.
181
Id.
182
Id.

26
 As for financing, Goudet told Shaich that JAB would “use [Goldman] for our

financing, so it is logical we take them on the buyside.”183 Shaich and Moreton were

not concerned about using another advisor, despite Panera’s prior relationship with

Goldman.184 JAB recommended that Panera use Adam Taetle from Barclays or

David Ciagne from Morgan Stanley because it was “important [for Panera] to pick

someone who understands [JAB’s] playbook, otherwise could be dangerous.”185

Ciagne was JAB’s coverage banker at Morgan Stanley.186

Upon receipt of an offer, on March 14, the board engaged advisors. The board

retained Sullivan & Cromwell LLP (“Sullivan & Cromwell”) as the board’s outside

183
JX0418 at 2. Goldman participated in a $3 billion credit facility in connection with the
merger. Goldman agreed to provide 33.3% of the credit facility, along with J.P. Morgan
Chase & Co. and the Bank of America Corporation. PTO ¶ 76.
Petitioners moved to restrict Respondent’s use of any JAB evidence to support its
case. See D.I. 139 at 12 n.53. I considered and denied this argument in my March 20,
2019 bench ruling on Petitioners’ motion in limine. See D.I. 111. I maintain that
Petitioners’ attempt and failure to obtain additional discovery in the Netherlands precludes
their later attempt to restrict use of any documents in this Court. See id. at 5:9–6:9.
Petitioners deposed Bell and received documents from Bell as a custodian. Petitioners used
Bell’s testimony and JAB documents in its post-trial arguments. Petitioners have not
shown that Respondent relied on any JAB documents that were not produced in discovery.
For these reasons, along with those explained in my March 20 bench ruling, Petitioners’
request is denied.
184
Moreton Tr. 775:17–22; Shaich Tr. 988:19–999:4 (“I knew Goldman, but I knew many
bankers. I had worked with others. And I think that I felt we could be well represented in
many ways.”).
185
JX0418 at 2.
186
Kwak Tr. 1194:7–13.

27
legal counsel for the potential transaction with JAB.187 Frank Aquila served as

Sullivan & Cromwell’s lead partner on the matter.188 Shaich proposed engaging

Barclays Capital or Morgan Stanley as Panera’s financial advisor,189 but did not tell

the board that JAB had suggested those firms, or specifically Ciagne. 190 After

deliberation and discussion, the board directed the Company to explore a potential

engagement and selected Morgan Stanley as its financial advisor.191 Specifically, on

Aquila’s recommendation, Panera selected Michael Boublik of Morgan Stanley.192

Boublik had not worked for JAB, and neither Bell, nor anyone else at JAB, knew

him.193

On March 15, Morgan Stanley cleared an initial conflicts check.194 Two days

later, Morgan Stanley gave Panera a key request list that included the Five-Year

187
PTO ¶ 77.
188
Id. ¶ 78.
189
Id. ¶ 135.
190
See JX0421 at 2.
191
PTO ¶ 135; JX0421 at 2. On March 15, the board initiated the engagement process with
Morgan Stanley. PTO ¶ 137. On April 2, the Company entered into an engagement letter
with Morgan Stanley. JX0596.
192
JX0466 at 2. Boublik was the lead senior banker from Morgan Stanley advising Panera
management and the board in connection with the potential transaction with JAB during
the Panera engagement. At Morgan Stanley, he served as Chairman of M&A for the
Americas and Managing Director. PTO ¶ 71.
193
Bell Tr. 1113:21–1114:4.
194
PTO ¶ 141.

28
Strategic Plan, and started putting together initial valuation metrics.195 Then, on

March 20, Sullivan & Cromwell informed the board that Morgan Stanley “had

cleared an initial conflicts check on March 15 and the parties were now negotiating

an engagement letter for the transaction.”196

On March 29, Panera management and Morgan Stanley met to review the

Five-Year Strategic Plan and Five-Year Financial Model as updated after the March

1 board meeting.197 Paul Kwak, a Vice President of M&A at Morgan Stanley,198

prepared questions about Panera’s Five-Year Financial Model.199 In conducting its

analysis, Morgan Stanley “immediately noticed that [management projections] were

clearly more bullish and had higher growth, higher margins than what the street

consensus was,”200 but used the Five-Year Financial Model to develop its

management case DCF analysis.201

195
JX0689; Kwak Tr. 1256:8–1258:8.
196
JX0448 at 1.
197
PTO ¶ 151.
198
Id. ¶ 72.
199
See JX0606.
200
Kwak Tr. 1219:23–1220:16.
201
See JX0625 at 3.

29
 On March 30, the bank sent its engagement letter. 202 Panera agreed to pay

Morgan Stanley $42 million: $8 million became payable upon execution of the

merger agreement, and the remainder was contingent upon closing.203 The

disclosure letter identified the scope of conflict and formally disclosed all of Morgan

Stanley’s prior dealings with JAB.204 Morgan Stanley disclosed they “have

provided, currently are providing, and/or in the future may provide, certain

investment banking and other financial services to the Company, The Potential

Buyer, and the Buyer Related entities.”205 Morgan Stanley also included in the letter

that other than Patrick Gallagher, no senior deal team member “is a member of the

coverage team for the Potential Buyer or the Buyer Related Entities.”206

Even though Panera’s deal team did not include any JAB coverage bankers, a

JAB coverage banker twice passed messages between the JAB and Panera deal

teams. First, on March 27 (before execution of the engagement letter), Ciagne

emailed Boublik to communicate JAB’s fears that Morgan Stanley was not doing

enough to assure Panera that JAB could finance the deal.207 Second, on April 1,

202
JX0562.
203
JX0789 at 52–53.
204
PTO ¶ 155; JX0562.
205
JX0562 at 2.
206
Id. at 3.
207
See JX2021.

30
Boublik caused Ciagne to deliver the board’s message to JAB that “Panera is serious,

and there has to be a higher price.”208 The board did not know that Ciagne had

previously communicated with Boublik about financing.209 Indeed, Shaich and

Moreton learned about that communication for the first time at trial.210

H. Panera Rejects JAB’s Offer, And JAB Compresses The Timeline.

On March 14, the board met to discuss JAB’s $286.00 offer.211 The board

agreed that JAB would need to raise its offer and authorized Shaich to pursue further

discussions in pursuit of a higher price.212 The board instructed Shaich to inform

JAB “that the Board would not agree to any proposed offer for the Company that

was not significantly higher than the $286.00 per share currently proposed by

JAB.”213

The next day, Morgan Stanley conducted initial valuation work with Panera’s

trading history, trading multiples, and precedent transaction multiples.214 From this

208
Moreton Tr. 837:9–838:9.
209
Shaich Tr. 1068:21–1070:1.
210
Id. 1068:21–1070:1; Moreton Tr. 905:7–908:11.
211
PTO ¶¶ 134, 136.
212
Id. ¶¶ 134, 136.
213
Id. ¶ 134.
214
See Kwak Tr. 1208:6–1209:9.

31
and JAB’s bidding precedents, Morgan Stanley was comfortable that it could

negotiate a price that was above $300.00.215

On March 17, Morgan Stanley advised Shaich and Moreton on JAB’s

historical bidding approach and helped them formulate a strategy to raise JAB’s offer

price.216 Shaich stayed up until 3 a.m. digesting JAB’s historical bidding

approach.217 While reviewing, Shaich wrote to Moreton that he wanted to push JAB

on price; Moreton cautioned him not to push it too hard by being too greedy, because

“pigs get fat, hogs get slaughtered.”218

The next day, on March 18, Shaich informed JAB that although the board

approved continued discussions and targeted due diligence, it expected that JAB

would have to increase their $286.00 offer north of $300.00 per share.219 JAB agreed

to discuss the possibility of offering a higher price internally and to get back to

Shaich on March 20.220

215
See id..
216
JX0455.
217
See Shaich Tr. 996:10–997:5.
218
JX0435; accord Moreton Tr. 822:9–823:1.
219
PTO ¶ 139.
220
Id.

32
 On March 20, JAB made a second offer of $296.50 per share, with the warning

that JAB would “not go one penny over 299. We’re not going to hit 300.” 221

Panera’s stock had closed at $255.24 the day before, so the offer represented a 16.2%

premium to that trading price.222 The board met that same day to review the second

offer.223 The board “supported continued discussions with JAB and JAB initiating

due diligence on the Company but expressed its expectation that any final offering

price be significantly higher.”224 Boublik agreed and commented, “I would hope

that we get another collective move of at least the same magnitude.”225

On March 22, Shaich and Moreton communicated to Bell and Goudet the

board’s expectation to Bell and Goudet that JAB find additional value in the

Company.226 Shaich explained, “You’ve made a meaningful move once, and I and

my board appreciate that, but it’s going to take another meaningful move once

again . . . I’m confident that once we sit down and go through our business plan and

you’ve done your diligence you’ll be able to get there.”227

221
Id. ¶ 140; accord Shaich Tr. 1002:9–23; JX0483.
222
JX0552 at 3.
223
PTO ¶ 141.
224
JX0448 at 1; see also JX0432 at 2.
225
JX0456 at 2.
226
PTO ¶ 142.
227
JX0494 at 1.

33
 A few days later, on March 26, JAB and Panera signed a confidentiality

agreement and discussed the due diligence process.228 Bell testified that when JAB

makes an offer without a financing contingency, they conduct due diligence at “the

appropriate level” “to have this minimum amount of information in order to ensure

that [they] could get the debt commitments” from their lenders.229 In these

discussions, JAB asked Panera to move up the transaction with an anticipated

announcement during the week of April 3.230 Shaich recognized that JAB wanted to

move quickly,231 but responded that it was “material” to Panera that JAB “robustly

(and genuinely) understand the drivers in the business [s]o they can fully appreciate

the value that we understand is here and seek from them.”232

Shaich and Moreton also spoke with their legal and financial advisors about

the feasibility, benefits, and risks of JAB’s proposed accelerated timeline.233 The

transaction was the fastest in Kwak’s career.234 Nevertheless, Panera’s advisors said

228
PTO ¶¶ 144–45.
229
Bell Tr. 1105:3–1106:9.
230
See PTO ¶ 146.
231
See JX0494 at 1.
232
JX0491.
233
PTO ¶ 143.
234
Kwak Tr. 1254:24–1255:3.

34
that they had adequate time.235 The board liked the shortened timeline, valuing less

distraction.236 It was feasible for the board because of its extensive review of the

Five-Year Strategic Plan, Panera’s financial results, and the Five-Year Financial

Model.237 Shaich understood that the Company’s future value lay in its initiatives,

so he conditioned the compressed timeline on meeting with JAB to review the Five-

Year Strategic Plan and Five-Year Financial Model.238 JAB agreed and the parties

agreed to work toward entering into a definitive agreement during the week of April

3.239

On March 27, JAB’s counsel provided Sullivan & Cromwell a draft merger

agreement and a draft voting agreement.240 The board did not counteroffer on deal

price or deal terms at that time.

Also on March 27, the Company learned that a Bloomberg reporter had called

Bell inquiring about a possible sale of Panera.241 Shaich wrote in an email that he

learned this through “a desperate call from [D]avid [B]ell [after] Bloomberg called

235
Moreton Tr. 827:10–24; accord Kwak Tr. 1233:10–20.
236
Colasacco Dep. 142:11–143:15.
237
See, e.g., Moreton Tr. 748:4–13, 768:13–769:8, 780:22–781:9, 805:2–16, 839:17–
840:3; Shaich Tr. 951:18–952:2, 1015:15–21.
238
JX0491; accord JX0490.
239
PTO ¶ 146.
240
Id. ¶ 149; JX1011.
241
PTO ¶148; JX0513.

35
him inquiring about Panera.”242 At trial, Shaich commented that during the call, Bell

had “anxiety in his voice” and “was very nervous and concerned about it.”243

Despite the JAB playbook’s tenet of confidentiality,244 JAB did not walk after the

leak. Instead, JAB began their diligence in Panera’s data room on March 28.245

While JAB was conducting their due diligence, Morgan Stanley presented its

initial valuation analysis to the board.246 At the March 30 board meeting, Morgan

Stanley presented seven different valuation metrics to guide the negotiations and

frame JAB’s outstanding offer of $296.50.247 Morgan Stanley also identified and

ranked “Potential Interlopers” by their strategic rationale and ability to pay.248 In

order, these included Starbucks, Chipotle, Restaurant Brands International (“RBI”),

242
JX0513.
243
Shaich Tr. 1007:7–17.
244
See JX0418 at 2 (“We are making a friendly, confidential offer. If there is a leak, we
will walk away.”); Bell Tr. 1104:5–16 (referencing JX0418 and stating “the way we give
offers at JAB, among other things, is to require confidentiality. We think it’s in the mutual
interests of both parties. It’s just the way we work. And so we said that fundamental to
our offer was the fact that it had to remain confidential.”); Kwak Tr. 1196:22–1198:1
(testifying that Morgan Stanley was familiar with the JAB playbook and understood that
JAB’s threat to walk was real).
245
PTO ¶ 150.
246
Id. ¶ 154; JX0545 at 1–2; JX0552.
247
PTO ¶ 154; accord JX0552 at 3–12 (valuing the Company through a multiples-based
valuation matrix from the street and management cases, historical trading and multiples
analyses, comparable companies analyses and a precedent transactions analysis).
248
JX0552 at 14–15.

36
Dunkin’, Domino’s, McDonald’s, Yum!, and Darden.249 Morgan Stanley ruled out

financial sponsors,250 focused on strategic buyers like Starbucks, and explained why

others were unlikely to compete.251 In its analysis, Morgan Stanley recognized that

Starbucks had “[p]reviously engaged with [Panera] in acquisition discussions,” and

“[h]ad mentioned concerns that acquisition multiple would be above where

Starbucks traded.”252

This analysis fit with Shaich’s and the board’s deep knowledge of the

industry.253 According to Shaich, the “big three” were not viable options: Starbucks

had just passed on Panera months earlier; Chipotle was in an E. coli crisis; and RBI

had just acquired Popeyes.254 As for the remainder, Shaich knew Dunkin’ very well,

had discussions with them, and knew they were 100% franchised, operated at smaller

volume, and would not be interested in Panera.255 Shaich knew Domino’s CEO as

a dear friend and understood their business was 100% franchised and 100% pizza

249
Id.
250
Kwak Tr. 1199:9–1200:3, 1228:18–1229:5.
251
See JX0552 at 14–15.
252
Id. at 14.
253
Shaich Tr. 1019:18–1021:16; Moreton Tr. 811:19–812:17, 824:3–12, 912:12–16.
254
Shaich Tr. 1019:18–1020:13.
255
Id. 1020:14–19.

37
and that they were not acquiring.256 Shaich previously had discussions with

McDonald’s and knew that, based on mistakes in their acquisition history, they had

pulled back and were not acquiring, so Panera “wouldn’t be for them.”257 Shaich

also had discussions with Yum! years earlier and knew that, at the time of the merger,

Yum! faced activist pressure to leave China and also would not run company

stores.258 Finally, Shaich knew that Darden was acquiring Cheddars and faced

activist pressure.259 Shaich explained: “[I]t was just patently clear to me that,

knowing what I know, and knowing these people and where this had played out, that

there really wasn’t a viable interested party.”260 The board agreed. Moreton

explained that “there was nobody else out there talking to [the board] about

potentially acquiring [the Company], nor did [the board] think there would be.”261

256
Id. 1020:20–23.
257
Id. 1020:24–1021:4.
258
Id. 1021:5–9.
259
Id. 1021:10–12.
260
Id. 1021:13–16.
261
Moreton Tr. 811:19–812:17; accord id. 912:7–11 (“[T]here was nobody else to reach
out to . . . [w]e went through the process.”).

38
 I. JAB Reviews Panera’s Five-Year Strategic Plan And Five-Year
Financial Model And Makes Their Final Offer.

Shaich met with four JAB leaders on March 31, as well as two of their

advisors.262 The group met for three to four hours, and Shaich presented a deck titled

“Five-Year Strategy & Financial Model.”263 The Company presented nonpublic

information, including the status of the Five-Year Strategic Plan and the financial

projections contained in the Five-Year Financial Model.264 Days later, on April 2,

JAB confirmed its pre-diligence estimates for cost savings265 and internally revised

their target price upwards from $290.00 to $305.00 per share.266

The next day, on the morning of April 3, Bloomberg reported that Panera was

exploring strategic options, including a possible sale of the Company to potential

suitors such as JAB, Starbucks, and Domino’s.267 In response to the leak, Panera’s

stock price jumped to $261.87, an 8% increase from the pre-public speculation price,

and closed at $282.63.268

262
JX0546 at 1. These leaders included Bell, Axel Bhat (JAB partner and CFO), Trevor
Ashley (JAB principal), and Tim Hennessy (JAB Beech CFO). Id.
263
Shaich Tr. 1010:9–22; JX0564.
264
See generally JX0564; accord Moreton Tr. 840:14–23.
265
JX0593 at 49–50 (confirming JAB’s pre-diligence estimates and predicting $365 to
$570 million in cost savings).
266
Compare JX0400 at 44, with JX0593 at 65.
267
PTO ¶ 159; JX0609.
268
See, e.g., JX0631 at 5; JX0982 at 61.

39
 Later that day, on April 3, Shaich, Hurst, and Bufano met with JAB’s senior

partners including Goudet, Bell, Peter Harf (JAB senior partner), Bart Becht (JAB

partner and chairman), and two of their advisors.269 The Company presented a deck

also titled “Five-Year Strategy & Financial Model,”270 which was substantially

similar to the deck delivered to the other JAB leaders on March 31.271 Both decks

contained an in-depth look into the Five-Year Strategic Plan and the Five-Year

Financial Model.272 Both decks discussed Panera’s opportunities in international

franchising,273 “Panera At Home” (including coffee),274 and technology.275

The April 3 deck contemplated “other opportunities” that would stem from

combining JAB and Panera.276 These opportunities included joint efforts in

consumer packaged goods (“CPG”), coffee, international expansion, technology,

marketing, real estate modeling, sourcing, and franchising.277 The parties did not

269
JX0546 at 1.
270
JX0607.
271
Compare JX0564, with JX0607.
272
See JX0564; JX0607; accord Moreton Tr. 840:14–23.
273
See JX0564 at 131; JX0607 at 145.
274
See JX0564 at 141–152; JX0607 at 155–169.
275
JX0564 at 154–158; JX0607 at 171–175.
276
JX0607 at 229.
277
Id.

40
quantify the amount of savings generated by these efforts.278 After this discussion,

Bell explained that JAB

did some back-of-the-envelope math and got excited about
it. But since we had no discussion with anyone about it,
and it was a short period of time, we didn’t, quote/unquote,
put it in the model, financially. But I will tell you––you
even heard it earlier—coffee was core to our strategy of
doing this. It’s just something that was difficult for us to
quantify at the time we were doing diligence.279

JAB did not quantify any growth opportunity synergies either before or after

diligence.280

Also on April 3, Panera countered JAB’s draft merger agreement and

proposed lowering the termination fee from 4.0% to 2.5% of the equity value of the

transaction.281 In response to that counter, also on April 3, JAB communicated to

Shaich a “best and final” offer of $315.00 per share and a 3.0% termination fee.282

The $315.00 offer represented a 34.1% premium from the March 10 trading price of

$234.91 and a 20.3% premium from the March 31 pre-public speculation trading

278
See id.
279
See Bell Tr. 1129:2–24.
280
See JX0400 at 43; JX0593 at 64.
281
PTO ¶ 160.
282
Id. ¶ 161.

41
price of $261.87.283 JAB informed Panera that this offer would expire when the

United States market opened on April 5.284

J. Morgan Stanley Offers Its Fairness Opinion, And Panera
Approves The Deal.

At 9:00 p.m. on April 3, Morgan Stanley’s fairness committee met to discuss

the proposed transaction between Panera and JAB, and found that the $315.00 per

share offer exceeded the historical trading range, analyst price targets, public trading

benchmarks, and the street discounted equity value analysis.285 The analysis also

showed that the $315.00 per share offer fell within the range of precedent

transactions, management discounted equity value analysis, and both the street and

management discounted cash flow analyses.286 The committee prepared to present

these findings to the board the next day.

On April 4 at 9:30 a.m., the board held a meeting to discuss JAB’s “last and

final” offer.287 Shaich, Bufano, and Hurst presented highlights from the “Five-Year

Strategic Plan & Financial Model” previously shared with JAB leaders.288 During

283
JX0631 at 6.
284
PTO ¶ 161.
285
See JX0627 at 20.
286
See id.
287
PTO ¶ 163.
288
Id.; JX0608; JX0628 at 1; JX0629.

42
this meeting, management also reviewed the Company’s full Five-Year Financial

Model with the board.289

Morgan Stanley presented its fairness committee’s findings.290 The analysis

included the evolution of merger discussions; a summary of JAB proposals with

implied transaction multiples; a JAB company and precedent transaction overview;

Panera’s historical stock performance, next-twelve-month multiple measurements,

and valuation comparables; and analyst perspectives on Panera.291

Morgan Stanley also presented its preliminary standalone valuation summary

from both a street case and an internal management case based on the Five-Year

Model.292 The discounted cash flow analysis for the street case ranged from $231.00

to $318.00 per share, while the management case ranged from $300.00 to $410.00

per share.293 The board discussed these valuations at length and asked Morgan

Stanley questions about the underlying assumptions.294 Morgan Stanley explained

that the management case reflected assumptions for Panera’s various initiatives and

that “all those initiatives had to go right in order to achieve this management case

289
PTO ¶ 164; JX0629; JX0616; accord Moreton Tr. 840:4–20.
290
See PTO ¶ 165; JX0631.
291
JX0631 at 1–14.
292
Id. at 15–20.
293
Id. at 19.
294
JX0628 at 2; Moreton Tr. 843:14–845:3.

43
and then . . . there was execution risks in executing or in getting all those initiatives

to the point that management was assuming within their management case.”295

While Morgan Stanley highlighted the effect of these assumptions, it accepted

management’s data in creating the management case and did not test it for

reasonableness.296 Morgan Stanley concluded that the merger consideration of

$315.00 per share “was fair to and in the best interests of, from a financial point of

view, the Company’s shareholders and that it would be prepared to issue an opinion

to the Company and its Board to that effect.”297

After the board discussed their perspectives on the proposed transaction and

the valuation of the Company, “[t]he directors expressed their strong support for the

proposed transaction, noting particularly that the price was fair for the Company’s

295
Kwak Tr. 1236:18–1237:10. Kwak explained:
A few considerations:
You’ve got to believe that 80+% of your value is in the terminus
Everything has got to go right; there is always risk of execution which may
not be captured by our calculated WACC
All initiatives are proven strategies, but not all are proven on a large scale
Restaurant space is competitive – our guys are ahead of the pack now in terms
of technology, for instance, but it’s a r[i]sk that others are striving to catch
up[.]
JX0625 at 3–4.
296
Kwak Tr. 1221:2–11, 1235:17–1236:8, 1240:11–13.
297
JX0628 at 2.

44
shareholders and that the deal protection mechanisms in the merger agreement were

not preclusive to an alternative proposal for the Company’s shares.”298 The board

then recessed and reconvened at 4:00 p.m. for the final review of the proposed

transaction.299

At that time, Sullivan & Cromwell updated the board about the merger

agreement, the voting agreement, and the non-competition agreement.300 Boublik

orally delivered Morgan Stanley’s fairness opinion (confirmed the next day in

writing)301 that the merger was fair from a financial point of view to Panera and its

stockholders.302 The board unanimously approved the proposed resolutions to adopt,

execute, and deliver the merger agreement.303

On April 5, Panera and JAB issued a joint press release announcing the

merger.304

298
Id. at 3.
299
Id.
300
PTO ¶ 167; JX0630 at 1.
301
JX0647.
302
PTO ¶ 167; JX0628 at 2.
303
PTO ¶ 167; JX0630 at 2.
304
PTO ¶ 170; accord JX0655.

45
 K. Panera Solicits And Obtains Stockholder Approval.

On May 12, Panera filed a preliminary proxy statement on Schedule 14A

recommending that Panera’s stockholders vote in favor of the merger.305 On June 1,

Panera issued a definitive Schedule 14A proxy statement, by which Panera notified

all stockholders of their appraisal rights for their shares of Panera common stock

pursuant to 8 Del. C. § 262, and attached a copy of 8 Del. C. § 262 as Annex C to

the proxy.306 On June 16, Panera issued supplemental disclosures.307 On July 11,

Panera stockholders approved the merger at a special meeting, at which over 97%

of votes cast favored the merger, representing 80.26% of the outstanding shares.308

The merger closed on July 18.309 No potential bidders emerged at any time,

including after Bloomberg’s March 27 request for comment or after the parties

announced the deal on April 5.310 As of the merger date, Panera operated 910

company-owned bakery-cafes and 1,132 franchisee bakery-cafes across 46 states,

the District of Columbia, and Ontario, Canada.311

305
PTO ¶ 2.
306
Id. ¶ 3.
307
Id. ¶ 4.
308
Id. ¶¶ 5-6; JX0842 at 3.
309
PTO ¶ 7.
310
Kwak Tr. 1215:24–1218:2; Moreton Tr. 842:22–843:2.
311
PTO ¶ 89.

46
 On November 8, Panera announced that effective January 1, 2018, Shaich

would step down as Chief Executive Officer of Panera and remain with the Company

as Executive Chairman, and Hurst would succeed Shaich as Chief Executive

Officer.312

L. Dissenting Stockholders Seek Appraisal.

In early July 2017, thirty Dissenting Stockholders notified Panera of their

desire to exercise their appraisal rights pursuant to 8 Del. C. § 262 over a collective

1,863,578 shares of Panera common stock.313 The Dissenting Stockholders did not

withdraw their demands within sixty days of the effective date of the merger.314

Between August 16, 2017 and September 13, 2017, Dissenting Stockholders

filed five separate petitions seeking appraisal relating to the merger. The Court

consolidated those petitions into this action.315

Between December 19, 2017 and May 10, 2018, Panera prepaid twenty-nine

of the Dissenting Stockholders the full amount of the merger consideration, $315.00,

312
Id. ¶ 180.
313
Id. ¶ 9.
314
Id. ¶ 10.
315
Id. ¶ 11.

47
and statutory interest accrued through the payment date, for each share of Panera

common stock beneficially owned.316

Certain Dissenting Stockholders withdrew their demands, and Panera and

these Dissenting Stockholders jointly stipulated to dismiss their petitioners from this

action.317

The Court held a six-day trial between April 1 and April 8, 2019. Post-trial

briefing was completed on August 1.318 The Court ordered supplemental briefing

on August 22,319 which the parties completed on September 27.320 The Court held

post-trial argument on October 7.321

II. ANALYSIS

Petitioners contend that the fair value of their shares is $361.00.322 Petitioners

support this valuation with a three-pronged approach. They give no weight to deal

price.323 Instead, they give 60% weight to a discounted cash flow model prepared

316
Id. ¶ 13.
317
See id. ¶¶ 14–19.
318
See D.I. 134.
319
D.I. 142.
320
See D.I. 144.
321
See D.I. 154.
322
JX0983 at 10.
323
Id.; accord Shaked Tr. 394:10–12.

48
by their expert, Israel Shaked, professor of finance and economics at Boston

University’s Questrom School of Business.324 Petitioners attribute 30% of their

valuation to Shaked’s comparable companies analysis, and 10% to his precedent

transaction analysis.

Throughout this proceeding, including at trial, Respondent pursued a

valuation of $304.44.325 Respondent argued that deal price minus synergies deserves

dispositive weight. Respondent’s expert was Glenn Hubbard, the Dean and Russell

L. Carson Professor in finance and economics at the Graduate School of Business of

Columbia University, as well as professor of economics at Columbia University.326

Seizing on Bell’s trial testimony regarding revenue synergies, Respondent lowered

its valuation to $293.44 in post-trial briefing. Respondent seeks a refund of any

difference between its prepayment at $315.00 per share and fair value.

A. Legal Standard

“An appraisal proceeding is a limited legislative remedy intended to provide

shareholders dissenting from a merger on grounds of inadequacy of the offering

price with a judicial determination of the intrinsic worth (fair value) of their

shareholdings.”327 “Section 262(h) unambiguously calls upon the Court of Chancery

324
JX0983 at 6.
325
See JX0982 at 55–56; accord Hubbard Tr. 1479:23–1480:6.
326
JX0982 at 5.
327
Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1186 (Del. 1988).
49
to perform an independent evaluation of ‘fair value’ at the time of a

transaction . . . [and] vests the Chancellor and Vice Chancellors with significant

discretion to consider ‘all relevant factors’ and determine the going concern value

of the underlying company.”328 The determination of fair value is intended to ensure

the stockholder is “paid for that which has been taken from him, viz., his

proportionate interest in a going concern.”329 Valuation of the corporation as a going

concern must be “based upon the operative reality of the company as of the time of

the merger, taking into account its particular market position in light of future

prospects.”330 “Given that ‘[e]very company is different; every merger is different,’

the appraisal endeavor is ‘by design, a flexible process.’”331

“In a statutory appraisal proceeding, both sides have the burden of proving

their respective valuation positions by a preponderance of [the] evidence.”332 In

328
DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346, 364 (Del. 2017) (quoting
Golden Telecom, Inc. v. Glob. GT LP, 11 A.3d 214, 217–18 (Del. 2010)); accord 8 Del. C.
§ 262(h).
329
Tri-Continental Corp. v. Battye, 74 A.2d 71, 72 (Del. 1950); accord Verition P’rs
Master Fund Ltd. v. Aruba Networks, Inc., 210 A.3d 128, 132–133 (Del. 2019).
330
In re Appraisal of Stillwater Min. Co., 2019 WL 3943851, at *19 (Del. Ch.
Aug. 21, 2019) (internal quotation marks omitted) (quoting M.G. Bancorp., Inc. v. Le
Beau, 737 A.2d 513, 525 (Del. 1999)), judgment entered 2019 WL 4750400 (Del. Ch.
Sept. 27, 2019).
331
Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd., 177 A.3d 1, 21 (Del. 2017)
(footnote omitted) (quoting In re Appraisal of PetSmart, 2017 WL 2303599, at *26 (Del.
Ch. May, 26, 2017), and then quoting Golden Telecom, 11 A.3d at 218).
332
M.G. Bancorp., 737 A.2d at 520.

50
evaluating the parties’ positions, “[n]o presumption, favorable or unfavorable,

attaches to either side’s valuation,”333 and “[e]ach party also bears the burden of

proving the constituent elements of its valuation position . . . , including the propriety

of a particular method, modification, discount, or premium.” 334 Because the Court

determines fair value based on an adversarial presentation blending facts, opinions,

and argument, the Court’s conclusions in one appraisal proceeding may not squarely

inform its conclusions in another.335

The appraisal exercise occurs in the context of the efficient market hypothesis,

“long endorsed” by the Delaware Supreme Court.336 “It teaches that the price

produced by an efficient market is generally a more reliable assessment of fair value

than the view of a single analyst, especially an expert witness who caters her

valuation to the litigation imperatives of a well-heeled client.”337 In view of this

principle, the Delaware Supreme Court has acknowledged “the economic reality that

333
Pinson v. Campbell-Taggart, Inc., 1989 WL 17438, at *6 (Del. Ch. Feb. 28, 1989).
334
Stillwater, 2019 WL 3943851, at *18 (quoting Jesse A. Finkelstein & John D.
Hendershot, Appraisal Rights in Mergers and Consolidations, Corp. Prac. Series (BNA)
No. 38-5th, at A-90 (2010 & 2017 Supp.)).
335
See In re Appraisal of Jarden Corp., 2019 WL 3244085, at *1 (Del. Ch. July 19, 2019),
reargument granted in part, denied in part, 2019 WL 4464636 (Del. Ch. Sept. 16, 2019).
Merion Capital L.P. v. Lender Processing Servs., L.P., 2016 WL 7324170, at *16 (Del.
Ch. Dec. 16, 2016); Glob. GT LP v. Golden Telecom, Inc., (Golden Telecom Trial), 993
A.2d 497, 517 (Del. Ch.), aff’d, 11 A.3d 214 (Del. 2010);
336
Dell, 177 A.3d at 24.
337
Id.

51
the sale value resulting from a robust market check will often be the most reliable

evidence of fair value, and . . . second-guessing the value arrived upon by the

collective views of many sophisticated parties with a real stake in the matter is

hazardous.”338 At the same time, the Delaware Supreme Court does not view “the

market [a]s always the best indicator of value, or that it should always be granted

some weight.”339 “There is no presumption that the deal price reflects fair value.”340

“[T]he persuasiveness of the deal price depends on the reliability of the sale process

that generated it.”341 If the sale process is not open or sufficiently reliable, “the deal

price should not be regarded as persuasive evidence of fair value.”342

338
DFC, 172 A.3d at 366.
339
Dell, 117 A.3d at 35.
340
Stillwater, 2019 WL 3943851, at *21 (citing Dell, 177 A.3d at 21; DFC, 172 A.3d at
366–67).
341
Id.
342
Id. at *22; accord Aruba, 210 A.3d at 137 (“[A] buyer in possession of material
nonpublic information about the seller is in a strong position (and is uniquely incentivized)
to properly value the seller when agreeing to buy the company at a particular deal price,
and that view of value should be given considerable weight by the Court of Chancery
absent deficiencies in the deal process.”); Jarden, 2019 WL 3244085, at *23 (“This court
has heeded the Supreme Court’s guidance and regularly rests its appraisal analysis on the
premise that when a transaction price represents an unhindered, informed and competitive
market valuation, that price ‘is at least first among equals of valuation methodologies in
deciding fair value.’” (quoting In re Appraisal of AOL Inc., 2018 WL 1037450, at *1 (Del.
Ch. Feb. 23, 2018))).

52
 There is no checklist or set of minimum characteristics for giving weight to

the deal price.343 Indeed, Delaware Supreme Court precedent announced in “Aruba,

Dell, and DFC do[es] not establish legal requirements for a sale process.”344 A deal

price serves as a persuasive indicator of fair value where the sale process bears

“objective indicia of fairness that rendered the deal price a reliable indicator of fair

value.”345 Vice Chancellor Glasscock described a “Dell compliant” process as one

“where (i) information was sufficiently disseminated to potential bidders, so that (ii)

an informed sale could take place, (iii) without undue impediments imposed by the

deal structure itself.”346 In Stillwater, Vice Chancellor Laster recited several

objective indicia of reliability approved by the Delaware Supreme Court:

negotiations “[at] arm’s-length”;347 board deliberations without “any conflicts of

interest”;348 buyer “due diligence and recei[pt of] confidential information about [the

343
See Stillwater, 2019 WL 3943851, at *21.
344
Id. at *22.
345
Id. at *44.
346
AOL, 2018 WL 1037450, at *8.
347
Stillwater, 2019 WL 3943851, at *22 (citing DFC, 172 A.3d at 349).
348
Id.; see also DFC, 172 A.3d at 375–76.

53
company’s] value”;349 and seller “extract[ion of] multiple price increases.”350 The

Delaware Supreme Court has particularly stressed the absence of post-signing

bidders as an objective indicator that the sale process was reliable and probative of

fair value.351

The presence of objective indicia of reliability does not establish a

presumption in favor of the deal price.352 Where these indicia are present, I must

determine whether they outweigh weaknesses in the sale process, or whether those

weaknesses undermine the persuasiveness of the deal price.353

349
Stillwater, 2019 WL 3943851, at *23 (citing Aruba, 210 A.3d at 137–38); see also Dell,
177 A.3d at 30 (review of “the Company’s confidential information”); DFC, 172 A.3d at
355–56 (same).
350
Stillwater, 2019 WL 3943851, at *23 (citing Aruba, 210 A.3d at 139; Dell, 177 A.3d at
28).
351
Id. (citing Aruba, 210 A.3d at 136 (“It cannot be that an open chance for buyers to bid
signals a market failure simply because buyers do not believe the asset on sale is
sufficiently valuable for them to engage in a bidding contest against each other.”); Dell,
177 A.3d at 29 (“Fair value entails at minimum a price some buyer is willing to pay—not
a price at which no class of buyers in the market would pay.”); id. at 33 (finding that
absence of higher bid meant “that the deal market was already robust and that a topping
bid involved a serious risk of overpayment,” which “suggests the price is already at a level
that is fair”)).
352
Id. at *22.
353
Cf. id. (synthesizing the three recent Supreme Court appraisal decisions in Aruba, Dell,
and DFC).

54
 B. Panera’s Sale Process Was Sufficiently Reliable To Make Deal
Price Persuasive Evidence Of Fair Value.

I find several objective indicia of reliability in this case. As a prefatory matter,

Panera’s stock traded in an efficient market, such that indicia of reliability in

Panera’s sale process support giving weight to deal price.354 First, as Petitioners’

process expert James Redpath recognized, the parties negotiated in an arm’s-length

354
This point does not appear to be in serious dispute. Petitioners’ opening post-trial brief
did not assert that Panera’s stock did not trade in an efficient market. The parties discussed
the efficiency of the market for Panera’s stock only while talking past each other about
whether weight should be given to Panera’s stock price. Compare D.I. 138 at 60–65, and
D.I. 141 at 23, with D.I. 140 at 40–46. Out of an abundance of caution, I make the
unsurprising finding that Panera “ha[d] many stockholders; no controlling stockholder;
‘highly active trading’; and . . . information about the company [was] widely available and
easily disseminated to the market.” See Dell, 177 A.3d at 25 (citation omitted). Panera
also had a large market capitalization, substantial public float and trading volume, a low
bid-ask spread, a high number of equity analysts, and a rapid response to transaction
rumors. See id. at 7, 25. Hubbard’s report on these factors was persuasive and supported
by evidence presented at trial. JX0982 at 58–61; Hubbard Tr. 1504:11–1505:14, 1506:11–
24. In my view, these straightforward factors are plainly present and provide conclusive
evidence of an efficient market for Panera’s stock. This conclusion is undisturbed by
Shaked’s analyses of market reactions to Panera news, which I find to be plagued by
subjectivity in what is “new and material” information, and a failure to account for trading
volume. See JX0988 at 83–84, 90–92.

55
transaction.355 Redpath similarly conceded that the board was independent, and

labored without conflicts of interest.356

Second, JAB assessed Panera’s value using both Panera’s extensive public

information and focused due diligence into Panera’s confidential information.357 In

DFC, deal price was the best evidence of fair value in part because it was “informed

by robust public information[] and easy access to deeper, non-public

information.”358 Bell found Panera’s “transparency [was] off the charts[,]”and

JAB’s legal advisors shared the view that “much of [JAB’s diligence] is check the

box and that they have reviewed everything that is public.”359 Shaich explained that

he presented the Five-Year Strategic Plan “hundreds of times” to “internal groups,

355
Redpath Tr. 635:6–9. Redpath is a senior investment banking partner at Cypress
Associates, a “nationally recognized investment banking firm.” See id. 499:9–14, 505:18–
21.
356
Id. 635:24–638:9, 643:12–644:8. Petitioners claim a special committee was necessary
here, but Petitioners cannot point to a conflict that a special committee could remedy where
Panera had seven independent board members on its nine-member board.
357
JX0476 at 2; JX0583 at 1.
358
172 A.3d at 349.
359
JX0461 at 1; JX0581; accord JX0476 at 2 (“Remember, this is a very clean public
company, so have to tone down the voluminous generic requests . . . .”).

56
external groups” and “every investment conference” he attended (“twenty a year”)

“to get everybody to understand [] what’s the vision and where we were.”360

In addition, JAB received and reviewed the specific nonpublic information

that Shaich believed would lead JAB to see greater value in Panera.361 After

reviewing that information, JAB internally raised their offer from $296.50 to

$305.00, as the information confirmed a “[s]ignificant [c]ash [o]pportunity” through

working capital and other cost savings.362 Ultimately, JAB offered Panera

$315.00.363 Although JAB limited their access to non-public information, they did

so as a natural result of Panera’s widespread public dissemination of meaningful

information.

Third, Panera used Boublik’s guidance364 and Shaich’s doggedness to extract

two price increases.365 Even operating under their own preferred terms of

360
Shaich Tr. 921:7–9, 948:2–18, 960:8–961:3, 962:17–23; see, e.g., JX0194 at 1; JX0192
at 5, 11; JX2028 at 3, 17; JX0032 at 51; JX0041 at 5, 22; JX0064 at 2; JX0260 at 4–5, 15;
JX0331 at 3–4; JX0345 at 4–5, 14; JX0029; JX1039; JX0063 at 3; JX0304.
361
JX0490; accord Moreton Tr. 840:7–23.
362
JX0593 at 49–50. These findings are discussed further in Section II(D), infra.
363
PTO ¶ 161.
364
Kwak Tr. 1206:15–1207:6; accord Moreton Tr. 821:7–14 (“Q. Did Panera at any time
in the negotiations give a, quote, unquote, counteroffer in the sense of a specific price point
at which it would agree to a deal? A. No. We never did. This was part of the strategy
that Morgan Stanley helped craft, that there was no reason to do that. At this point, it was
just a push for more.”).
365
Shaich Tr. 999:9–1002:4.

57
engagement, JAB raised their price twice. The board rejected JAB’s initial $286.00

offer, communicating its expectation that JAB would find more value for the

Company during the diligence process.366 Boublik agreed and encouraged Shaich,

the lead negotiator, and Moreton, a board negotiation advisor, to seek additional

value.367 When JAB revised their offer to $296.50, JAB also explained that they

would not raise the offer a penny over $299.00.368 This was still too low for the

board.369 Shaich and Moreton listened to Morgan Stanley’s guidance and believed

the Company could break JAB’s stated ceiling price without giving a counteroffer.370

Morgan Stanley was right. After conducting diligence, confirming its anticipated

cost savings, and reviewing the Five-Year Strategic Plan and Five-Year Model, JAB

raised its price to $315.00.371

366
PTO ¶¶ 139, 141; JX0448 at 1; accord Moreton Tr. 822:1–8 (“JAB’s transactions had
gone from the initial discussions and initial bids, through due diligence, to the end, and
how they had a history of raising their offer price as they went through.”).
367
Moreton Tr. 820:4–13; accord JX0519 at 1.
368
PTO ¶ 140; accord Shaich Tr. 1002:9–23; JX0483.
369
PTO ¶ 141 (“The Board supported moving forward with further discussions and due
diligence but again expressed its expectation that any final offering price be significantly
higher.”).
370
See Moreton Tr. 821:7–822:8.
371
PTO ¶ 161.

58
 Fourth, no other potential bidders emerged, despite a leak during negotiations

and nonpreclusive deal protections.372 A leak gives potential bidders notice of the

transaction and an opportunity to bid.373 According to Kwak, leaks typically happen

at the tail end of a process,374 and a potentially interested buyer with the capacity to

acquire a $7 billion company would “have the experience and the know-how and the

team members to know that you do need to move swiftly because at any point they

could sign a transaction with the rumored buyer.”375 Kwak explained that when a

rumored transaction surfaces, coverage bankers immediately identify and contact

potential buyers “to explore whether th[ose] compan[ies] ha[ve] interest in pursuing

an acquisition.”376

The first evidence of a leak emerged on March 27, when Bloomberg called

JAB for a comment. The leak concerned Bell greatly, evidencing that JAB feared

372
Id. ¶¶ 148, 159; Kwak Tr. 1215:24–1218:2.
373
In re Appraisal of Solera Hldgs., Inc., 2018 WL 3625644, at *14 (Del. Ch.
July 30, 2018) (analyzing Dell and commenting that “[g]iven leaks in the press that Dell
was exploring a sale . . . the world was put on notice of the possibility of a transaction so
that any interested parties would have approached the Company before the go-shop if
serious about pursuing a deal.” (internal quotation marks omitted)); cf. DFC, 172 A.3d at
376 (identifying “the failure of other buyers to pursue the company when they had a free
chance to do so” as an objective indicator of fairness supporting deal price).
374
Kwak Tr. 1216:11–1217:16.
375
Id. 1216:11–23.
376
Id. 1216:24–1217:16.

59
another bidder might surface. The transaction became public on April 3, when

Bloomberg published its article.377 No bidders surfaced.

Further, no third-party bidders expressed interest or submitted a bid during

the three-month post-signing period after the parties announced the deal.378 Panera’s

deal protections included a no-shop provision with a fiduciary out, matching rights,

a 3% termination fee, and 104 days between signing and closing.379 Morgan Stanley

considered each post-signing protection to be customary or insufficiently preclusive

to post-signing bidders.380 Kwak viewed a 3 to 4% break-up fee as “typical” and

3% as “customary,”381 and recognized that even “customary” matching rights “may

discourage in a way and make it more challenging” for other bidders to come

forward, but such rights would not prevent them.382 Kwak testified at trial that an

interested bidder “could contact and put forth an offer to the company.” 383 Kwak

377
JX0609.
378
Kwak Tr. 1242:11–1243:3. In Kwak’s view, the leak gave interested bidders sufficient
time to come forward before signing. Id. 1242:11–23. Redpath agreed. JX0985 at 76
(“There was sufficient time for a topping bidder to emerge post-signing.”).
379
PTO ¶¶ 132, 161; JX0789 at 71–75, 79–81; see also JX0772 at 97–100, 106–107.
380
See, e.g., Kwak Tr. 1240:14–21, 1241:10–24.
381
Id. 1241:10–15.
382
Id. 1241:16–24.
383
Id. 1241:5–9.

60
concluded there was sufficient time between signing and closing, noting, “[I]f there

was someone, we would have expected to at least get some form of an inbound.”384

Petitioners have not meaningfully challenged the terms Panera’s post-signing

passive market check, or offered any evidence that an interested bidder did not have

a reasonable chance to bid.385 To the contrary, Redpath conceded, “[t]here was

384
Id. 1242:11–23.
385
This Court has recently posited that deal price is persuasive evidence of fair value, even
with a limited pre-signing outreach, if the merger agreement’s deal protections are
sufficiently open to permit a post-signing passive market check in line with what decisions
have held is sufficient to satisfy enhanced scrutiny. Stillwater, 2019 WL 3943851, at *24–
30. As Stillwater’s holdings have been appealed to the Delaware Supreme Court, I limit
my holding today to the unremarkable conclusion that no bidders emerged in the face of
nonpreclusive deal protections. But with the aid of the parties’ briefing on the issue, it
seems to me that Panera’s post-signing market check would survive enhanced scrutiny and
therefore under Stillwater, would support deal price as fair value. For example, in C & J
Energy, the parties bargained for a suite of deal protections, including a no-shop clause
subject to a fiduciary out, a 2.27% termination fee, and a post-signing passive market check
lasting 153 days. See C & J Energy Servs., Inc. v. City of Miami Gen. Emps., 107 A.3d
1049, 1063 (Del. 2014). The Delaware Supreme Court explained that under this suite, “a
potential competing bidder faced only modest deal protection barriers,” id. at 1052, and
“there were no material barriers that would have prevented a rival bidder from making a
superior offer,” id. at 1070. In support, the Delaware Supreme Court approvingly cited In
re Dollar Thrifty Shareholder Litigation, 14 A.3d 573, 612–13, 615 (Del. Ch. 2010). In
Dollar Thrifty, this Court found the board used reasonable judgment to deal exclusively
with the buyer without conducting a pre-signing market check where deal protections
included a no-shop provision with a fiduciary out, matching rights, a 3.9% termination fee,
and a passive post-signing market check lasting 126 days. Id. at 592–93, 614–16. And in
In re PLX Technology Inc. Stockholders Litigation, the Delaware Supreme Court affirmed
this Court’s damages ruling where the trial court determined damages based on a quasi-
appraisal theory that the company should have remained a standalone company. 211 A.3d
137 (Del. 2019) (TABLE), aff’g In re PLX Tech. Inc. S’holders Litig., 2018 WL 5018535
(Del. Ch. Oct. 16, 2018). At trial, this Court found that the sale process as a whole was
sufficiently reliable to reject a DCF methodology where the process included a fifty-day
passive, post-signing market check with a suite of deal protections, including a no-shop
with a fiduciary out, unlimited matching rights, and a 3.5% termination fee. PLX, 2018

61
sufficient time for a topping bidder to emerge post-signing.”386 After the leak and

the public deal announcement, other market participants “failed to pursue a merger

when they had a free chance to do so.”387 “The failure of any other party to come

forward provides significant evidence of fairness, because ‘[f]air value entails at

minimum a price some buyer is willing to pay—not a price at which no class of

buyers in the market would pay.’”388

In particular, none of the “big three”389 potential bidders that Morgan Stanley

identified—Starbucks, Chipotle, and RBI—showed any interest in bidding for

Panera, both before and after the parties announced the deal. Chipotle knew about

the leak before the deal signed, but did not express interest before or after signing.390

WL 5018535 at *2, *26–27, *44, *55. Panera’s deal protections differ little from those in
C & J Energy, Dollar Thrifty, and PLX. Panera’s 3.0% termination fee falls on the low
end of the range presented by these deals. As for the time between announcement and
closing or injunction, Panera’s falls in the middle. Each deal contained a no-shop provision
with a fiduciary out, and Dollar Thrifty and PLX included matching rights. Panera’s deal
protections fall within what Delaware courts have held to satisfy enhanced scrutiny.
386
JX0985 at 76.
387
DFC, 172 A.3d at 376; accord Stillwater, 2019 WL 3943851, at *35.
388
Stillwater, 2019 WL 3943851, at *42 (quoting Dell, 177 A.3d at 29); see also Dell, 177
A.3d at 32–34; Aruba, 210 A.3d at 136.
389
Shaich Tr. 1019:18–1020:13.
390
See JX0700 at 2.

62
Both RBI and Chipotle sent post-announcement congratulatory messages to Morgan

Stanley after the parties announced the deal.391

Finally, Panera solicited all logical buyers consistent with its knowledge of

the Company’s value and the market. The Delaware Supreme Court has identified

“outreach to all logical buyers” as a key indicator of reliability. 392 Petitioners

contend that Panera engaged in a closed, single-bidder strategy during the pre-

signing process. Respondent asserts that Panera engaged “all logical buyers.”393

In Dell, the board similarly limited its pre-signing canvass to two bidders,

based on its financial advisor’s recommendation that those two firms were “among

the best qualified potential acquirers” and that “there was a low probability of

strategic buyer interest in acquiring the company.”394 The Dell board also conducted

a go-shop, soliciting interest from sixty-seven potential bidders.395 As a result, the

391
See id.; JX0654 at 1–2. The other referenced potential bidder in the Bloomberg article,
Domino’s, expressed that it was not interested and was not “having any conversations
regarding the purchase of Panera” because it has “a lot more opportunity for growth in
pizza.” JX0609 at 2, 4.
392
Dell, 117 A.3d at 35.
393
Id.
394
Id. at 9 (quoting In re Appraisal of Dell, 2016 WL 3186538, at *6 (Del. Ch. May 31,
2016), aff’d in part, rev’d in part sub nom. Dell, Inc. v. Magnetar Glob. Event Driven
Master Fund Ltd., 177 A.3d 1 (Del. 2017)).
395
Id. at 12.

63
Supreme Court determined the deal price “deserved heavy, if not dispositive,

weight.”396

Panera led outreach to all logical buyers: Starbucks and JAB. The

negotiations with the two companies followed the same pattern. Shaich asserted

Panera’s value based on the Five-Year Strategic Plan to “sell[]” the company, or

solicit interest,397 listened to gauge interest, and then consulted with the board.398

The failed negation with Starbucks prepared Shaich and the board to negotiate with

JAB.

As a recap, in June 2015, Goldman identified several potential strategic

bidders, and identified Starbucks as Panera’s most likely buyer.399 Starbucks was

the most likely bidder because Panera was “such a valued company” “trading at very

high multiples.”400 Goldman concluded a financial buyer was unlikely, and the

board understood that financial sponsors were limited and none could afford the

Company.401 With that analysis, the board decided that it should remain an

396
Id. at 23.
397
Compare Shaich Tr. 970:14–21; 971:20–973:3, with id. 978:8–979:18; accord Bell. Tr.
1147:11–1148:8.
398
Compare Shaich Tr. 968:9–969:5, with id. 980:8–981:4, 983:7–984:13.
399
JX0019 at 18; Shaich Tr. 955:7–956:3, 958:1–19; accord Moreton Tr. 770:22–771:19.
400
Shaich Tr. 955:18–23; accord Moreton Tr. 770:22–771:19.
401
Shaich Tr. 956:14–957:7.

64
independent company, but that “the Company would, as it had done in the past,

continue to observe the markets and consider activities in the best interest of

shareholders on an ongoing basis.”402

About a year later, in July 2016, Starbucks initiated a possible collaboration403

and the board instructed Shaich to solicit Starbucks’ interest in an acquisition.404 In

August 2016, Shaich started the conversation with JAB, another potential buyer that

was conducting acquisitions at “huge multiples.”405 Shaich explained:

I saw an article in Nation’s Restaurant News, I think [JAB]
had just done an acquisition. They were buying
companies every six months at huge multiples. And I
thought they were at least worth getting to know in some
way, so I picked up the phone and called Goldman, said
do you know these guys and can you introduce me. That
was August.406

After August, Panera continued its negotiations with Starbucks, which concluded by

December 2016.407 JAB expressed interest in meeting with Shaich, but with another

402
JX0019 at 2; accord JX0022 at 3–4 (Goldman’s November 4, 2015 board presentation
confirming the board’s decision to remain a standalone company due to the broader market
trends).
403
See JX0110; JX0118; JX0772 at 56.
404
JX0125 at 4; Moreton Tr. 795:10–796:17.
405
Shaich Tr. 976:11–23.
406
Id.
407
Id. 975:15–24; Moreton Tr. 798:23–799:10.

65
ongoing acquisition, JAB did not engage with Shaich until February 2017.408 After

JAB expressed interest in acquiring Panera on March 24, Shaich probed Goldman

for more information about the acquisition landscape, especially after RBI

announced its acquisition of Popeyes on February 21.409 Goldman replied, “Best

buyer today is a JAB, with a long term perspective that counters near term valuation

trends. Or Starbucks. Or a merger with someone like Chipotle.”410 Shaich shared

Goldman’s analysis with Colasacco.411

As conversations with JAB proceeded, Morgan Stanley identified the same

four strategic primary strategic buyers as Goldman: JAB, Starbucks, Chipotle, and

RBI.412 Morgan Stanley also excluded other potential acquirers. Morgan Stanley

recognized that Dunkin and Dominos were highly leveraged like RBI and all three

would have difficulty paying all cash.413 Beyond this, Morgan Stanley

recommended that Dunkin and Dominos also had “slightly different business

408
Shaich Tr. 976:24–977:6; accord JX0318; JX0334.
409
JX0399 at 1–2.
410
Id..
411
Id. at 1.
412
JX0625 at 4; JX0631 at 23. The companies that Petitioners cite as potential buyers were
identified by Morgan Stanley and passed over because of fit or limitations. See JX0631 at
23–24; JX0625 at 4.
413
See JX0625 at 4.

66
models” and lacked a clear strategic fit.414 With this guidance from both Goldman

and Morgan Stanley, the board viewed JAB as the only remaining logical bidder.

Like Goldman, Morgan Stanley viewed Starbucks as the only other potential buyer

that could afford Panera,415 but the board had already exhausted that option.416 The

board knew that Chipotle was recovering from a food safety crisis and otherwise

focused on share buybacks.417 And the board knew that RBI had agreed to acquire

Popeyes.418 The board concluded that no other bidders were out there.419 Morgan

Stanley confirmed the board’s conclusion: “JAB represents the buyer with the most

interest, wherewithal, and ability to pay and would be a good fit.”420 Moreton

414
Id.
415
JX0631 at 23; accord Kwak Tr. 1226:21–1227:12.
416
Shaich Tr. 974:11–22, 975:23–976:10, 1019:18–1020:5; accord JX0625 at 4 (“There
were conversations with Starbucks last year, they ultimately declined to proceed citing that
Panera was trading too richly (and it has since only traded up).”); JX0772 at 56; Moreton
Tr. 798:23–799:10.
417
Shaich Tr. 1020:6–9; JX0631 at 23.
418
See JX0631 at 23.
419
Moreton Tr. 811:19–812:17 (“[T]here was nobody else out there talking to [the board]
about potentially acquiring [the Company], nor did [the board] think there would be.”); see
also id. 912:7–11 (“[T]here was nobody else to reach out to . . . [w]e went through the
process.”). Market analysts confirmed this conclusion after the Bloomberg leak: “[W]e
believe Starbucks is the only one with any real (even slight) probability. We also note that
JAB might be interested, given its acquisitions of Krispy Kreme, Einstein/Noah, Keurig,
Caribou, and Peet’s Coffee. . . . All-in, we suspect JAB would be the more likely suitor
than Starbucks, as we believe a newly minted CEO and a relatively sizable acquisition
would increase Starbucks’ risk profile.” JX0609 at 12–13.
420
JX0625 at 4.

67
summarized, “we had just gone through the key strategic buyer. Starbucks had told

us no. And Morgan Stanley and Goldman had told us there were no financial bidders

out there. So we really thought this was an opportunity to see if we could get a price

that was reasonable for shareholders.”421 The leak added certainty to the board’s

conclusion.422

Petitioners argue that a logical buyer universe of only two buyers is “absurd”

because “Panera could not have known buyers were ‘out’ without ever conducting a

market check.”423 The Delaware Supreme Court has held that when “the directors

possess a body of reliable evidence with which to evaluate the fairness of a

transaction, they may approve that transaction without conducting an active survey

of the market.”424 And “if a board fails to employ any traditional value maximization

tool, such as an auction, a broad market check, or a go-shop provision, that board

must possess an impeccable knowledge of the company’s business for the Court to

determine that it acted reasonably.”425

421
Moreton Tr. 824:3–12.
422
JX0625 at 4 (“Since the leak yesterday, no one has come forward to express an
interest.”).
423
D.I. 140 at 17.
424
Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1287 (Del. 1989).
425
In re OPENLANE, Inc. S’holders Litig., 2011 WL 4599662, at *5 (Del. Ch.
Sept. 30, 2011).
68
 I find that the board possessed a robust body of evidence that it used to

determine the universe of logical buyers. The board’s impeccable knowledge of the

market in the pre-signing phase, and the lack of interested bidders in the post-signing

phase, leads me to find that the board led outreach to all logical buyers. Because

Panera engaged with Starbucks first, JAB’s confidentiality requirement did not

preclude the board’s outreach to all logical buyers. The absence of a wider canvass

or go-shop does not change the reliability of Panera’s outreach.426 This decision was

confirmed when no other bidders came forward either after the leak or during the

post-signing passive market check. The preponderance of the evidence shows that

the board used its knowledge of the market and its advisors’ advice to engage all

logical buyers in a value-maximizing process.

Panera’s deal process bears many indicia of reliability, including an arm’s

length negotiation, a disinterested and independent board, numerous price increases,

no emerging bidders post-leak or post-announcement, and outreach to all logical

buyers. The process also terminated with an open passive post-signing market

426
Petitioners point to Morgan Stanley’s label of “Potential Interlopers” in claiming that
Panera should have contacted additional potential bidders. As explained herein, the
preponderance of the evidence shows that Panera contacted all logical buyers. Morgan
Stanley’s label, which they later changed to “Potentially Interested Parties,” does not
disturb this result. Compare JX0552 at 14–15, with JX0631 at 23–24; accord Kwak Tr.
1237:11–20. And even if the use of the term “interlopers” signaled a fear of intruders, as
explained herein, Morgan Stanley advised the board to negotiate for less restrictive deal
terms, enabling another interested party to bid.
69
check. I therefore turn to the weaknesses in the process to determine whether they

undermine its reliability.

C. Weaknesses In Panera’s Process Do Not Undermine The Deal
Price’s Reliability.

Petitioners point to weaknesses in the pre-signing process that they believe

undermine the deal price’s reliability. They focus on actions taken by the board,

Shaich, and Morgan Stanley. In all, I find that the transaction’s flaws do not

undermine its numerous indicia of reliability.

1. The board did not undermine the deal process.

Petitioners characterize the pre-signing phase as exhibiting the board’s

“apathy,” ignorance, and “flat-footed[ness].”427 According to Petitioners, these traits

manifested in the board’s failures to 1) authorize Shaich’s initial outreach to JAB,

2) oversee the negotiations, 3) negotiate with a proper valuation, 4) reject JAB’s

confidentiality and speed provisions, and 5) negotiate deal protections.

First, while the board had authorized Shaich to solicit Starbucks’ interest in

acquiring Panera,428 Shaich did not obtain specific board authorization for his

August 2016 outreach to JAB. Shaich’s independent outreach did not generate a

response until early 2017. At that time, when JAB offered to meet with Shaich,

427
D.I. 139 at 20, 48.
428
See JX0116; JX0122 at 1; JX0125 at 4; accord Moreton Tr. 794:8–795:13, 796:3–8.

70
Shaich informed Colasacco and other board members.429 When JAB expressed an

interest in acquiring Panera on February 24, 2017, Shaich informed Colasacco the

next day,430 and informed the board three business days later on March 1.431 Thus,

although Shaich initiated Panera’s outreach to JAB, he timely and fully updated the

board when JAB expressed interest in a transaction.432 Shaich did not negotiate for

a role post-merger or negotiate for change-in-control compensation.433 Petitioners

provided no evidence that the outreach alone––Shaich’s only act that was not

specifically authorized—led to any diminution in value or in the board’s power to

negotiate or decline a transaction with JAB.

Second, while Shaich initiated and led the negotiations, the board exercised

active oversight. The board of directors “has the sole power to negotiate the terms

429
See JX0338; Shaich Tr. 977:17–978:7; accord Moreton Tr. 803:7–11 (“Did any of the
directors know about Mr. Shaich’s discussions with JAB before the March 1st board
meeting? A. Certainly, I did. I believe Domenic did, and perhaps Tom [Lynch] did.”).
430
See JX0287 at 9; accord Shaich Tr. 980:11–981:4.
431
JX0408 at 3–4; accord Moreton Tr. 802:17–803:11. Moreton described Shaich’s
“typical way of communicating [as] concentric circles, first with [him], and then Domenic
[Colasacco], our lead director, and Tom Lynch, and then the board as a whole.” Moreton
Tr. 794:2–7. Shaich testified about this procedure, and explained that on an unspecified
date he informed the board that he used Goldman to reach out to JAB. See Shaich Tr.
1048:2–23. Shaich had followed this same pattern in the Starbucks negotiations. When
Schultz proposed a collaboration with Panera on July 31, 2016, Shaich informed Moreton,
Lynch, and Colasacco that evening, and informed the board two days later on August 2.
See JX0118; JX0116; JX0122 at 1; JX0125 at 4; accord Moreton Tr. 793:14–795:13.
432
JX0408; Shaich Tr. 983:7–984:13.
433
JX0421 at 1; Bell Tr. 1109:17–1111:8.

71
on which the merger will take place and to arrive at a definitive merger agreement

embodying its decisions as to those matters.”434 The preponderance of the evidence

shows the board negotiated the terms of the merger and unanimously approved the

final merger agreement.

A CEO’s rogue negotiations can undermine a deal process. In Jarden, the

CEO “immediately took charge and, consistent with a stereotypical ‘cut to the chase’

CEO mentality, he laid Jarden’s cards on the table before the negotiations began in

earnest and before the board and its financial advisors had a chance to formulate a

plan.”435 Beyond this, the Jarden CEO failed to inform the board of the

negotiations.436 He also did not receive authorization from the board to suggest a

price, make counteroffers, or negotiate his “change-in-control compensation,” but

did so anyway.437 These facts contributed to the Court’s finding that the merger

price was not a reliable indicator of fair value.438

434
Stephen M. Bainbridge, Mergers and Acquisitions 56 (2d ed. 2009) (citing 8 Del. C. §
251(b)); accord 8 Del. C. § 141 (“The business and affairs of every corporation organized
under this chapter shall be managed by or under the direction of a board of directors . . . .”).
435
Jarden, 2019 WL 3244085, at *24 (footnote omitted).
436
Id. at *9, *24.
437
Id. at *24.
438
Id. at *25.

72
 I do not find similar troubling facts in this case. Unlike in Jarden, the board

directed Shaich’s negotiations, and Shaich observed the bounds of the board’s

authorization. Shaich informed the board of JAB’s interest before JAB made an

offer.439 At that time, the board authorized Shaich to “continue the conversations

with JAB and report back to the Board with an update as to the discussions and the

status of any offer.”440 When JAB offered to acquire Panera on March 10, 2017, for

$286.00 per share, Shaich formally informed the board on March 14.441 The board

instructed Shaich to move forward with the discussions,442 but directed him to

communicate to JAB that the board “would not agree to any proposed offer for the

Company that was not significantly higher than the $286.00.”443

The board also used Sullivan & Cromwell as its outside legal counsel for the

potential transaction with JAB.444 Sullivan & Cromwell advised the board during

439
JX0408 at 3–4 (Shaich reported, “while no offer had been made during those
discussions, Olivier Goudet, Chief Executive Officer of JAB, and David Bell, Head of
M&A of JAB, indicated that JAB had internally discussed the potential for a transaction
with the Company and JAB was considering making an offer to buy the Company”);
accord Shaich Tr. 977:23–978:7.
440
JX0408 at 4.
441
PTO ¶ 134.
442
JX0421 at 1–2.
443
PTO ¶ 134.
444
Id. ¶ 77.

73
its March 14 meeting and helped the board select financial advisors. 445 On March

15, the board initiated the process to retain Morgan Stanley as its financial advisor.446

From then on, Shaich and Moreton worked with the board and Morgan Stanley to

adopt a proven strategy to raise JAB’s price through diligence.447

When JAB raised their offer to $296.50 per share on March 20,448 Shaich

informed the board that same day.449 At the meeting, the board considered the offer,

and “various directors asked questions and provided their thoughts and

comments.”450 Shaich testified that “the board supported [him] in pushing” JAB to

a higher price451 and “expressed its expectation that any final offering price be

significantly higher.”452

Shaich conveyed that message to JAB and focused on generating additional

value through the diligence process.453 When JAB asked to move up the

445
Id. ¶¶ 134–135; JX0466 at 2.
446
PTO ¶ 137.
447
JX0455, JX2019; Kwak Tr. 1206:15–1207:6, 1208:6–1209:9; Moreton Tr. 821:7–14,
821:15–822:8; Shaich Tr. 996:15–1000:11.
448
PTO ¶ 140;
449
Id. ¶¶ 140–41; see JX0448 at 1.
450
See JX0448 at 1.
451
Shaich Tr. 1004:14–18.
452
PTO ¶ 141; JX0448 at 1.
453
See JX0494 at 1; JX0491; JX0490; JX0519.

74
announcement by a week, Shaich discussed this proposal with Moreton, Bufano, and

the Company’s legal and financial advisors, and explained he did not find the

compressed timeline material; he cared about JAB understanding Panera’s value.454

Accordingly, Shaich told JAB that “[w]e think we need to spend some more time

with you so we can show you the prospects in our plan, in order to get you

comfortable at a value that my board and I can support.”455 While Shaich led

diligence meetings between Panera and JAB, the board counteroffered against JAB’s

4.0% termination fee, proposing 2.5%.456

At the culmination of JAB’s diligence, Shaich informed the board of JAB’s

final offer.457 The board then reviewed the Five-Year Strategic Plan and Five-Year

Model,458 vetted the deal with Morgan Stanley,459 and ultimately “expressed their

strong support for the proposed transaction.”460 Later that same day, the board

reconvened to discuss the proposed merger with Sullivan & Cromwell.461 After

454
See JX0491.
455
JX0494 at 1; accord JX0490.
456
PTO ¶ 160.
457
Id. ¶ 163.
458
Id. ¶ 164; JX0608; JX0629.
459
PTO ¶ 165; JX0631.
460
JX0628 at 3.
461
PTO ¶ 167.

75
discussing the proposed merger, the board unanimously approved the proposed

resolutions to adopt, execute and deliver the merger agreement.462 The

preponderance of the evidence shows that the board directed Shaich’s negotiations

and “arrive[d] at a definitive merger agreement embodying its decisions as to th[ose]

matters.”463 Petitioners have likewise failed to prove that Shaich acted outside the

bounds of the board’s authorization.

Third, Petitioners assert the board negotiated in the dark, without a formal

valuation by its advisors. The board entered negotiations with an existing deep

knowledge of internal metrics of Panera’s value. During the negotiations, the board

analyzed seven valuation metrics with Morgan Stanley. When considering JAB’s

final offer, the board evaluated Morgan Stanley’s standalone valuation for Panera.

Initially, the board did not have a full valuation, but it had steeped itself in

management’s numbers. At several prior board meetings, the board reviewed parts

of the Five-Year Strategic Plan and Five-Year Financial Model. Without a

valuation, the board was not prepared to make a counteroffer when JAB’s initial

offer came in,464 so it limited its negotiating position to general pricing guidance.

462
Id.; JX0630 at 2.
463
Bainbridge, supra note 434, at 56.
464
See Kwak Tr. 1214:18–1215:14 (“I don’t remember that we suggested that [the board]
not offer a number. But . . . as an advisor, we certainly were not in a position to make any

76
This dovetailed with Morgan Stanley’s advice, based on JAB’s bidding precedents,

to focus on raising JAB’s ceiling.465

On March 14, the board instructed Shaich to convey to JAB that it would not

agree to any proposed offer for the company that was not significantly higher than

$286.00.466 Again, when JAB raised its offer to $296.50 and stated a max price of

$299,467 the board did not think JAB’s $296.50 was high enough and directed Shaich

to communicate to JAB that they expected additional value.468

Morgan Stanley met with management to review Panera’s updated Five-Year

Financial Model, an essential input for Morgan Stanley’s valuation.469 Morgan

Stanley incorporated these numbers into its implied transaction multiples and

recommendations of a number at that time because we had not completed our valuation
analysis.”).
465
See supra Section II(C)(3)(d).
466
PTO ¶ 136. Moreton explained that “significantly higher” would “convey that [the
board] had to get the best price that we could, and that we thought that they had to go over
their ceiling. And we thought that when they had a chance to go through and do the
diligence on the company, that they would be able to do that.” Moreton Tr. 823:14–824:2.
In rejecting JAB’s initial offer, Shaich explained, “[i]n order for our Board to get fully
comfortable with and supportive of a transaction, your value will need to reflect a price
‘that begins with a 3’ . . . [a]lthough I am not suggesting you need to be deeply in the
$300s, I am also not talking about $300.00 either.” JX2019 at 2.
467
PTO ¶140; accord Shaich Tr. 1002:9–23; JX0483.
468
PTO ¶ 141; JX0448 at 1.
469
PTO ¶ 151.

77
illustrative valuation matrices.470 On March 30, Morgan Stanley presented its

preliminary valuation analysis to the board.471 This presentation contained two

illustrative valuation matrices, Panera’s historical stock performance, next-twelve-

month multiples, operating comparables, valuation comparables, precedent

transactions, and JAB’s precedent transaction overview.472 This presentation did not

include Panera’s standalone valuation.

Morgan Stanley’s full valuation, including Panera’s standalone valuation,

came on April 4, the day after the board received JAB’s final $315.00 per share

offer.473 Also on April 4, the board discussed the updated Five-Year Financial

Model.474 The standalone valuation included two DCFs: the management case

generated from Panera’s Five-Year Financial Model, and the street case generated

from consensus of broker projections.475 The board assessed these metrics using its

knowledge of the Five-Year Financial Model. When reviewing the management

case DCF, Morgan Stanley cautioned the board that risks could prevent Panera from

reaching the valuation predicted using the Five-Year Financial Model. Morgan

470
See JX0552 at 3, 6.
471
PTO ¶ 153; JX0545; JX0552.
472
See JX0552.
473
PTO ¶¶ 161, 165.
474
Id. ¶ 164; JX0608; JX0629; Moreton Tr. 831:22–832:5.
475
See JX0628 at 2.

78
Stanley explained that “[y]ou’ve got to believe that 80+% of your value is in the

terminus” and highlighted risks in competition and execution.476 The board asked

questions about “assumptions used in the presentation and differences among the

various valuation techniques.”477 The board ultimately decided that the management

case “wasn’t the proper way to look at the valuation.”478 Morgan Stanley presented

its oral fairness opinion for the transaction, which it would provide in writing the

following day.479 After Morgan Stanley left, the board met in executive session and

discussed the transaction and the Company’s valuation. 480 The board found JAB’s

$315.00 offer consistent with its understanding of Panera’s value and unanimously

approved the transaction.481

It is problematic that the board, through Shaich, gave early guidance toward a

price that was not “deeply in the $300s,”482 but this pricing guidance was not a

potentially binding counteroffer, and did not set a ceiling on the price. The board

476
JX0625 at 3–4.
477
JX0628 at 2; accord Moreton Tr. 843:14–845:3.
478
Moreton Tr. 843:14–845:3.
479
PTO ¶¶ 167, 171; JX0630 at 1; JX0647.
480
JX0628 at 3.
481
PTO ¶ 167; JX0628 at 3 (stating that after conferring as a board, “[t]he directors
expressed their strong support for the proposed transaction, noting particularly that the
price was fair for the Company’s shareholders and that the deal protection mechanisms in
the Merger Agreement were not preclusive to an alternative proposal for the Company’s
shares”); JX0630 at 2.
482
JX2019 at 2.
79
rejected JAB’s initial offer because it knew Panera’s value from its continual review

of the Five-Year Financial Model. Panera’s strategy of pressuring JAB to raise its

ceiling ushered in an offer that Morgan Stanley opined was fair and the board found

consistent with its understanding of Panera’s value. The board checked its

understanding of Panera’s value against Morgan Stanley’s seven valuation metrics

on March 31. And the board reviewed and discussed the Company’s standalone

value in depth on April 4 by reviewing the Five-Year Financial Model and Morgan

Stanley’s DCF valuations. Although the board did not have each of these valuation

metrics at the outset of the negotiations, it reviewed each of them before it accepted

JAB’s final offer.

Fourth, while JAB conditioned its offer on confidentiality and speed, Panera’s

board valued those traits as a way to minimize disruption. The board had enacted

confidentiality protections in its discussions with Starbucks, too. In both

negotiations, Shaich and other board members used their Gmail accounts.483 Shaich

did this because he worried “intensely” about disruption.484 At trial, Shaich

explained:

483
Compare JX0118, and Shaich Tr. 969:6–10, with JX0318 at 1, and JX0435, and
JX0491, and Shaich Tr. 1000:12–23; 1004:19–1005:7.
484
Shaich Tr. 1000:15–23, 1004:19–1005:13.

80
 I am very sensitive to any discussion about anything that
could be perceived as a potential acquisition and upsetting
the company. . . . It would upset our relationships with our
franchisees, our vendors, and, quite frankly, would shut
down the work on this transformation plan for three to six
months, whatever time period that would be the basic
discussion in the company.485

Thus, JAB’s desire for speed benefitted the Company.486 Moreton explained it was

“to our advantage to go quickly from the standpoint we don’t want to disrupt our

people either, if things got out in the press. So everyone said they had adequate time,

so we said, Okay. Let’s shoot for it.”487 Colasacco agreed: “I would like this period

to be as short as possible, because I believe that eventually management becomes

aware, general management becomes aware. In the due diligence process—other

processes, it’s hard—it’s very hard to keep a secret.”488

This internal practice aligned with Morgan Stanley’s guidance to limit

outreach outside of Panera. Morgan Stanley advised that JAB would “walk away if

485
Id. 969:6–16; accord id. 957:8–24.
486
JX0581 (stating JAB is “not interested in a protracted negotiation that results in
significant management distraction, so they always go very quickly”).
487
Moreton Tr. 827:17–24.
488
Colasacco Dep. 142:11–25; see also id. 143:6–9 (“[A] short period, a yea or nay period
on whether [JAB] would . . . have an actual interest in signing an agreement was a
positive.”).

81
[Panera] or its advisors talk[ed] to other parties.”489 Morgan Stanley encouraged

compliance:

Based on our familiarity with [JAB’s] behavior, we did
believe that their threat to walk was real. And we do see
potential buyers throughout our projects really do walk
away if, for example, a deal leaks or they get roped into an
auction process, because there are certain buyers that just
have no interest being in part of an auction process.490

Redpath confirmed that “if you were serious about JAB, you would need to pursue

those discussions on an exclusive basis.”491

When JAB sought to accelerate the process by one week, Shaich conditioned

the tight timeframe on “a full vetting of the five-year and our strategic presentation

because for [Panera] this is a discussion of value” to ensure that JAB would “robustly

(and genuinely) understand the drivers in the business [s]o they [could] fully

appreciate the value that we understand is here and seek from them.”492 The board

also ensured Panera’s advisors had adequate time.493 After conducting diligence and

489
JX0418 at 2.
490
Kwak Tr. 1197:16–1198:7.
491
Redpath Tr. 658:1–11.
492
JX0491.
493
Moreton Tr. 827:17–24; accord Kwak Tr. 1233:14–20.

82
attending these meetings, JAB internally revised their target price upwards to

$305.00 per share494 and eventually offered $315.00.495

Finally, contrary to Petitioners’ complaint, the board negotiated for less

restrictive deal protections. Panera’s deal protections included a no-shop provision

with a fiduciary out, matching rights, and a 3% termination fee.496 During

negotiations, the board achieved a reduction in the termination fee from 4.0% to

3.0% by counteroffering 2.5%.497 Kwak testified, “a 3 percent break-up fee is

customary. And our rule of thumb is, generally for a transaction of this size, 3 to 4

percent is typical.”498 Kwak testified that the deal’s no-shop with the fiduciary out

and matching rights were also customary.499 Redpath agreed.500

The board successfully negotiated a lower termination fee. Otherwise, it

assented to the no-shop with a fiduciary out because the board understood that JAB

was the only remaining logical buyer. The board otherwise assented to the deal

494
JX0593 at 65.
495
PTO ¶ 161.
496
Id. ¶¶ 132, 161; JX0789 at 71–75, 79–81; see also JX0772 at 97–101, 106–107.
497
PTO ¶¶ 160–61.
498
Kwak Tr. 1241:10–15.
499
Id. 1240:14–21, 1241:16–24.
500
JX0990 at 39.

83
terms, including matching rights, which its advisors viewed as “customary.” 501

Petitioners have not shown that the board failed to challenge JAB’s suggested deal

protections. Instead, the board “bargain[ed] for value in negotiating the deal

protections and only acceded to the termination fee when it reached terms regarding

price and deal certainty that it viewed as attractive.”502

The preponderance of the evidence does not support a finding that the Panera

board was apathetic, ignorant, or flat-footed. Rather, I find that the board started the

negotiations well versed in Panera’s financials and projections; empowered Shaich

to press JAB to raise its price and fully consider Panera’s internal evidence of value,

and supervised the negotiations; obtained a full valuation in time to meaningfully

consider JAB’s final offer within JAB’s compressed timeline; and successfully

negotiated less restrictive deal protections. The board’s performance does not render

Panera’s pre-signing process unreliable.

501
Kwak Tr. 1241:16–22 (“Q. And there were also matching rights in the merger
agreement here. In Morgan Stanley’s view, did matching rights prevent other bidders from
coming forward? A. It doesn’t prevent. It may discourage in a way and make it more
challenging, but it doesn’t prevent other bidders from coming forward.”).
502
Dollar Thrifty, 14 A.3d at 614.

84
 2. Shaich’s personal interests did not undermine the sale
process.

Petitioners contend that Shaich led negotiations despite personal conflicts,

specifically his desire to retire. Shaich’s prior attempts to step down had been

unsuccessful, and Shaich disliked aspects of running a public company.503

According to Petitioners, Shaich acquiesced to JAB’s demand for exclusivity and

left value on the table so that he could separate from the Company.504

In Aruba, the Delaware Supreme Court used the deal price as the most reliable

indicator of value when making its fair value determination.505 That was true even

though the company’s top executive had conflicting incentives over retirement. At

trial, this Court found that these conflicts did not undermine the deal price as an

indicator of fair value because the conflict “would not have changed [the company’s]

standalone value.”506 The Stillwater Court recently synthesized the role of conflicts

503
See Shaich Tr. 1077:11–1079:14.
504
Petitioners present a secondary contention that Shaich was apathetic on price because
he focused on closing a deal so that he could liquidate and diversify his assets. There is no
evidence in the record that he wished to liquidate. Redpath Tr. 645:12–646:11 (identifying
no evidence of Shaich’s intent to liquidate his Panera assets); Shaich Tr. 1022:20–1023:1
(“I hadn’t diversified in 36 years. Why was I going to start now?”). For this reason, I focus
my analysis on the potential conflict from Shaich’s desire to step away from Panera.
505
Aruba, 210 A.3d at 141–42.
506
See Stillwater, 2019 WL 3943851, at *32–34 (citing Verition P’rs Master Fund Ltd. v.
Aruba Networks, Inc., 2018 WL 922139, at *7–8 (Del. Ch. Feb. 15, 2018), reargument
denied, 2018 WL 2315943 (Del. Ch. May 21, 2018), judgment entered (Del. Ch. 2018),
rev’d and remanded, 210 A.3d 128 (Del. 2019)).

85
in evaluating fair value: the “critical question” in considering a CEO’s motivation

is whether “personal interests undermined the sale process.”507

A CEO’s significant stock holdings may align her personal interests with the

company’s. “When directors or their affiliates own ‘material’ amounts of common

stock, it aligns their interests with other stockholders by giving them a ‘motivation

to seek the highest price’ and the ‘personal incentive as stockholders to think about

the trade off between selling now and the risks of not doing so.’”508 Alternatively, a

CEO’s personal interests can derail negotiations and cast doubt on the reliability of

deal price as a fair value. In Norcraft, the Court found the CEO was as focused on

securing a role with the future company as he was on securing the best deal price. 509

During the process, the CEO negotiated to divert funds from the merger into tax

receivable agreements that would benefit him personally.510

Petitioners have not proven that Shaich was conflicted or otherwise

uncommitted to obtaining the best price possible because he wanted to retire. The

507
Id. at *32.
508
Chen v. Howard-Anderson, 87 A.3d 648, 670–71 (Del. Ch. 2014) (quoting Dollar
Thrifty, 14 A.3d at 600); see also Merion Capital, 2016 WL 7324170, at *22 (noting the
CEO in “particular had an incentive to maximize the value of his shares, because he
planned to retire.”).
509
Blueblade Capital Opportunities LLC v. Norcraft Cos., Inc., 2018 WL 3602940, at *25
(Del. Ch. July 27, 2018), judgment entered, (Del. Ch. Aug. 8, 2018).
510
Id.

86
record shows that when the Company needed him, Shaich came back to his role as

Co-CEO with Moreton. And when Moreton had to step down, Shaich stayed on.

Then, when Shaich’s successor failed to materialize, he promised he would not leave

the Company in a lurch.511 Shaich repeatedly prioritized the Company’s success

over his preferred professional trajectory. Unlike the executive in Norcraft, Shaich

did not negotiate future employment with JAB,512 even with analyst speculation at

closing that Shaich could now “run the company privately[,] [n]ot a bad deal!”513

The record shows that Shaich was intent on driving the price upwards. During

the negotiations, the board cautioned Shaich, holding him back: on March 17,

Moreton cautioned not to push it too hard by being too greedy, because “pigs get fat,

hogs get slaughtered.”514 The next day, Shaich informed JAB that they would have

to increase their initial offer beyond $300.00 per share.515 During the negotiations,

Morgan Stanley described Shaich as “supremely focused on finding a good home

for the company and preserving the legacy of the business he’s built for 35 years.”516

No evidence disturbs this conclusion.

511
Shaich Tr. 1017:23–1018:10.
512
Bell Tr. 1109:17–1111:8; Shaich Tr. 1023:10–13; Hurst Tr. 1349:14–1350:10.
513
JX0777 at 2.
514
JX0435; accord Moreton Tr. 822:9–823:1.
515
JX2019 at 2.
516
JX0582 at 1.

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 My perceptions of Shaich from trial do not fit with Petitioners’ theory. Shaich

testified that he would not have sold Panera without getting the best price.517 I

believe him. Shaich’s commitment to realizing value for Panera appeared to run

deep. In my view, his commitment stemmed from his pride in Panera, a desire to

reward those who had built Panera with him, and an attachment to Panera itself.518

Correspondence between Moreton and Shaich on the date of the sale shows Shaich’s

perspective. Moreton wrote:

Ron - I imagine that you have thought about Louie and
your Dad more than a few times these past few days. This
morning I woke up thinking of George Kane and him
asking you: Ronnie - how much cash do we have. The
answer today would be quite a lot. I am sure George (and
your Dad and Louie) are resting peaceful and are
incredibly proud of you. You have touched so many
lives . . . especially mine. 519

Shaich replied, “Wonderful and very sad . . . Indeed I was thinking about my dad

yesterday. He always told me to take the money . . . I always ignored

517
Shaich Tr. 1024:7–1025:14.
518
See, e.g., Moreton Tr. 856:11–857:15 (“Mr. Shaich went to bed thinking about Panera
and how to make it better and woke up thinking about Panera and how to make it better.
He had the shareholders’ interests in mind at all times.”); Shaich Tr. 1021:10–1022:19
(“This was my life, and I very much wanted to maximize the value for that, and I very
much wanted to do something that served all the constituencies of our company. In
particular, our shareholders, who had hung with me through some tough times, and I
wanted to deliver for them.”).
519
JX0657.

88
him . . . Though that has never been my way [t]his is probably the right time . . .”520

Shaich’s trial testimony on this email was credibly emotional.

After weighing all the evidence, I am convinced that Shaich would not, and

did not, agree to a deal after a 35-year career before he found the right place and

value for Panera. Shaich wanted to exit Panera and he led the negotiations. Those

parallel facts do not convince me that either he or the impartial board accepted a low

offer—or any offer—because of Shaich’s personal goals. Shaich’s desire to retire

did not undermine the deal process or diminish Panera’s standalone value. “As a

matter of professional pride, he wanted to sell [Panera] for the best price he could.”521

3. Morgan Stanley’s actions and advice did not undermine
the pre-signing process.

Petitioners view Morgan Stanley as a conflicted advisor because of the firm’s

late conflict disclosures, financial incentives, and backchannel discussions about

financing via a JAB coverage banker. Petitioners also try to cast doubt on the

adequacy of Morgan Stanley’s representation. Respondent counters that Morgan

Stanley informed the board of its prior work with JAB, and the board determined

Morgan Stanley was not conflicted; Panera and Morgan Stanley used JAB’s

520
Id.
521
Stillwater, 2019 WL 3943851, at *34.
89
coverage banker to drive up value; and Morgan Stanley’s financial incentives

aligned with Panera’s stockholders. I take each in turn.

a. Morgan Stanley disclosed its prior JAB work to the
board.522

On March 15, the board initiated the process to retain Morgan Stanley as its

financial advisor.523 Moreton testified that he participated in those discussions, and

that Morgan Stanley had disclosed its prior work for JAB.524 Nothing in the record

casts doubt on this testimony.525 Then, on March 20, Sullivan & Cromwell informed

the board that Morgan Stanley “had cleared an initial conflicts check on March 15

and the parties were now negotiating an engagement letter for the transaction.”526

Morgan Stanley provided its formal disclosure of past work with JAB on March 30,

but the board already knew that Morgan Stanley had previous engagements with

JAB.527 There is no indication that these disclosures changed the board’s view of

522
As I determined above, although Shaich passed along JAB’s suggestion that the board
should choose either Barclays or Morgan Stanley, the board’s legal advisor recommended
Michael Boublik of Morgan Stanley, and the board followed that recommendation. See
JX0466 at 2. Boublik did not have preexisting relationships with JAB. JAB did not select
Panera’s financial advisors.
523
PTO ¶ 137.
524
Moreton Tr. 816:11–21.
525
Even Petitioners’ process expert conceded that Morgan Stanley cleared conflicts.
Redpath Tr. 673:16–674:1.
526
JX0448 at 1.
527
JX0562; Kwak Tr. 1222:7–16; accord Moreton Tr. 833:21–834:1 (“[Q.] Was this the
first time that the board was learning that Morgan Stanley had previous engagements with

90
Morgan Stanley’s ability to serve as its financial advisor. Moreton reflected on the

disclosures and testified:

[Y]ou wonder if it might be an advantage because they
might understand JAB. And certainly, I had faith in the
fact that the people that were going to work on the
transaction on our behalf were of the utmost integrity, and
so it didn’t bother me individually or the board as a
collective whole.528

The facts here diverge from those in Jarden, in which the board “made no

inquiry” about advisor conflicts and “there [wa]s no indication that either [the CEO]

or [the advisor] made any effort to disclose their past relationships to the board.”529

In this case, Morgan Stanley shared its past JAB work twice, including a formal

representation letter. The board reviewed the formal disclosure in advance, even if

only by a few days, before approving the deal. Petitioners have provided no basis

to conclude that the timing of Morgan Stanley’s disclosures undermined Panera’s

sale process.

JAB? A. No. The board knew about it immediately, as we did, so this was just more
formal.”).
528
Moreton Tr. 816:22–817:7; see also Kwak Tr. 1197:6–1197:10 (testifying that “because
[Morgan Stanley] had team members that [were] familiar with [JAB’s] strategy, we were
able to, very quickly, have discussions with Ron Shaich and Bill Moreton and to educate
them on JAB’s practices in the past”).
529
Jarden, 2019 WL 3244085, at *15 n.194.

91
 b. Morgan Stanley’s financial incentives were
commonplace and unremarkable.

Contingency clauses are standard in financial advisor agreements and seldom

create a conflict of interest. “Contingent fees for financial advisors in a merger

context are somewhat ‘routine’ and previously have been upheld by Delaware

courts.”530 This Court has recognized that “[c]ontingent fees are undoubtedly

routine; they reduce the target’s expense if a deal is not completed; perhaps, they

properly incentivize the financial advisor to focus on the appropriate outcome.”531

Petitioners contend that Morgan Stanley’s compensation relied on the signing

and closing of the deal with JAB. Morgan Stanley’s $40 million fee was contingent

in part on signing for $8 million and in part on closing for $32 million.532 The fee

contingency does not specify that the signing and closing must have involved JAB

for Morgan Stanley to be compensated under the terms of the agreement. Contrary

to Petitioners’ contention, the fact remains that, had another bidder emerged, Morgan

Stanley’s compensation would result from a “proposed sale of the Company” to “any

buyer.”533

530
Smurfit-Stone, 2011 WL 2028076, at *23 (citing In re Atheros Commc’ns, Inc., 2011
WL 864928, at *8 (Del. Ch. Mar. 4, 2011); In re Toys ‘R’ Us, Inc., S’holder Litig., 877
A.2d 975, 1005 (Del. Ch. 2005)).
531
Atheros, 2011 WL 864928, at *8.
532
JX0789 at 52–53.
533
JX0594 at 1; Kwak Tr. 1190:15–17.
92
 A conflict in advising a company in favor of a sale rather than in remaining a

standalone company is possible. No such conflict exists here. Morgan Stanley

presented the board with a full valuation analysis that included a standalone

valuation based on a number of metrics, including the comparatively high

management case based on the Five-Year Strategic Plan. And although Petitioners

contend that Panera should not have agreed to JAB’s price because its standalone

value was far higher, the $315.00 offer still fell within the management case’s

valuation range.534 Rather than accepting the management case, the board

recognized that there was execution risk to the Five-Year Strategic Plan, including

that Shaich would not be there to guide Panera 3.0 and beyond. Both the board and

Morgan Stanley found that the price was fair for the Company’s stockholders. In

any event, Morgan Stanley’s fairness opinion would not have precluded a board

determination that it was better for Panera to remain a standalone company.

c. Both parties used Morgan Stanley coverage
contacts outside the deal team to press their
respective advantages.

In its disclosure letter, Morgan Stanley advised that with the exception of

Gallagher, no senior deal team member “is a member of the coverage team for the

Potential Buyer or the Buyer Related Entities.”535 Morgan Stanley did not create a

534
JX0631 at 19, 38; Kwak Tr. 1280:22–1281:5.
535
JX0562 at 3.
93
wall between its JAB coverage team, including Ciagne, and its Panera senior deal

team.536 Kwak testified that Morgan Stanley “didn’t set up a wall because there was

no conflict[.]”537

Ciagne, as a member of JAB’s coverage team, relayed two communications

between the deal teams. In the first, on March 27, JAB told Ciagne to tell Boublik

that JAB feared Morgan Stanley was not doing enough to assure Panera that JAB

could finance the deal.538 In the second, on April 1, Boublik told Ciagne to tell JAB

“Panera is serious, and there has to be a higher price.”539 Although the board did not

know that Ciagne passed JAB’s message to Boublik,540 the board used Ciagne to

pass its own message to JAB.541

Petitioners point to Ciagne’s involvement as a fatal flaw in Panera’s process.

If this channel affected the deal price, it would have increased it. JAB limited their

536
Kwak Tr. 1195:1–16, 1293:3–12, 1294:24–1295:2.
537
Id. 1293:3–12.
538
See JX2021.
539
Moreton Tr. 837:9–838:9; accord JX0582 at 1 (“[O]ur goal is to have [Ciagne] deliver
a message that (i) suggests our very strong confidence in [the] business and (ii) points to
our valuation expectations, directionally.”).
540
Shaich Tr. 1068:21–1070:1; Moreton Tr. 905:7–908:11.
541
Moreton Tr. 837:23–838:9 (“The purpose was not for this individual, who I never met,
to negotiate. It was simply for one more message to Olivier that the price has to be over
$300 and they have to do the best that they can. So we were pulling every lever we could
think of to try to get the price increase.”).

94
message to JAB financing, while the Company used it to ratchet up pressure and

leverage the price. In my view, this flaw did not undermine a fair process.

d. Petitioners have not shown that Morgan Stanley’s
advice was inadequate.

JAB’s negotiation playbook contains four key principles: bilateral,

confidential, friendly, and fast.542 The playbook earned respect in the marketplace

because JAB had intimated they would walk if their counterpart did not follow it.543

But on one occasion when a JAB target, Krispy Kreme, pushed JAB to deviate to

the target’s advantage, JAB still closed the deal.544 Morgan Stanley knew about

Krispy Kreme’s success, and Petitioners fault Morgan Stanley for not counseling

Panera to similarly pursue a go-shop or reduced termination fee.

Petitioners fail to acknowledge that Morgan Stanley informed the board of

Krispy Kreme’s negotiation process and advised Panera to adopt a similar

negotiation strategy.545 Morgan Stanley educated Shaich and Moreton “very

quickly” on JAB’s negotiation playbook and assisted them in developing their own

542
Bell Tr. 1107:24–1108:17.
543
Kwak Tr. 1197:16–1198:7.
544
JX0455 at 13–23.
545
Id. at 5, 13–23.

95
strategy.546 On March 17, Boublik sent Shaich and Moreton a proposed script and

slide decks summarizing “JAB Historical Bidding Precedents” and “JAB Merger

Backgrounds.”547 Morgan Stanley presented these detailed precedent analyses when

the board was “thinking about strategies in terms of how to go back to JAB in terms

of negotiation . . . to show that JAB has bid up from their initial bid in the past

and . . . to show how much they had bid up after their initial bid.”548 Shaich reviewed

this deck and used it to inform his negotiation strategy.549

Moreton viewed these decks as “very important” because “they were able to

show us, in the bidding precedents, how JAB’s transactions had gone from the initial

discussions and initial bids, through due diligence, to the end, and how they had a

history of raising their offer price as they went through.”550 Shaich stayed up

digesting this deck until 3 a.m.,551 and later thanked Boublik “for [his] very valued

546
Kwak Tr. 1196:22–1197:10 (attributing Morgan Stanley’s insights into the JAB
playbook to Gallagher, who was a JAB coverage team member), 1206:15–1207:6; accord
JX0431 at 1; JX0432.
547
PTO ¶ 138; JX0455.
548
Kwak Tr. 1202:5–1203:9.
549
Shaich Tr. 997:6–998:3.
550
Moreton Tr. 821:15–822:8.
551
See Shaich Tr. 996:10–997:5.

96
input,” noting “it really made a difference in how [Shaich] approached

it . . . particularly relative to the history of their other deals.”552

The JAB Merger Backgrounds deck detailed the Krispy Kreme offer, strategy,

and negotiation timeline. After JAB made Krispy Kreme an initial offer, Krispy

Kreme asked for more time because it did not have a complete long-term financial

plan and felt it could not yet “appropriately assess JAB Holdings’ indication of

interest.”553 While Krispy Kreme was securing this information and advisors, JAB

postponed the Krispy Kreme negotiations until after it closed an acquisition with

Keurig Green Mountain, Inc.554 While JAB was working on the Keurig deal, a

financial buyer expressed interest in Krispy Kreme, but did not engage in

negotiations.555 Four and a half months after the initial offer, JAB and Krispy Kreme

resumed their negotiations.556 Krispy Kreme’s board insisted on additional value

552
JX0456 at 2. At trial, Shaich explained how Boublik “pushed [him] at some critical
times when there was a question to push for more price, and to push against JAB for more
price.” Shaich Tr. 995:18–996:6; see also id. 1003:11–21 (“He pushed me intensely. I
mean, you know, there’s this question, you don’t want to blow this up. On the other hand,
you want to push for as much as you can get, X plus 1. And Michael and I went through,
and we went through their precedent history, and I think the sense was it was a wise, all
considered, smart bet to push this deal further, even though this was already a very
attractive offer for the company.”).
553
JX0455 at 15.
554
Id. at 17.
555
Id.
556
Id. at 18.

97
based on their internal diligence, and threatened a go-shop unless JAB increased the

price and reduced the termination fee.557 JAB accepted Krispy Kreme’s

counteroffer, resulting in a 12% bid premium and a reduced termination fee.558

Petitioners assert that Krispy Kreme negotiated for six months, when in reality, JAB

postponed negotiations while pursuing another deal. Once they resumed

negotiations, they lasted forty-five days.

In comparison, Shaich initially reached out to JAB in August 2016, but JAB

was pursuing another transaction at the time. At the conclusion of that deal, Panera

and JAB negotiated for forty days. Unlike Krispy Kreme, Panera’s board did not

need additional time to educate itself on Panera’s long-term financial plan: the Five-

Year Financial Model was the board’s catechism. Like Krispy Kreme, the board

insisted that JAB find additional value through diligence.

Petitioners assert that Morgan Stanley should have advised the board to seek

a go-shop like Krispy Kreme. Krispy Kreme had another interested bidder. Panera’s

board and Morgan Stanley understood that there were no other bidders out there with

the interest and capacity to purchase Panera.559 Accordingly, instead of pursuing a

557
Id. at 21.
558
Id. at 5.
559
Kwak Tr. 1200:4–17 (sharing Morgan Stanley’s perspective with the board that “it
wasn’t likely that the potentially interested parties that we had, considering at that time
their strategic rationale and a potential combination with Panera, and . . . their ability to

98
go shop, the board obtained a lower 3.0% termination fee and conditioned JAB’s

timeline on a review of the Five-Year Strategic Plan and Five-Year Financial Model,

which generated an additional $18.50 in value.560 In the end, no other party

expressed an interest in acquiring Panera, which confirms the board’s understanding

that a go-shop would not result in a higher price for Panera stockholders. Morgan

Stanley did not fail to advise the board about prior negotiating strategies. Rather, I

find Morgan Stanley helped the board implement a proven negotiation strategy, with

the lessons learned from the Krispy Kreme transaction, to generate additional value.

Next, Petitioners contend that Morgan Stanley provided inadequate

substantive advice by failing to perform a leveraged buyout (“LBO”) analysis,

thereby failing to assess a financial sponsor’s ability to purchase Panera. Morgan

Stanley understood that “for an LBO of [$]6 to $7 billion, putting in equity that

represents more than 60 percent of the total purchase price is just not what financial

sponsors do for their LBO.”561 Petitioners’ process expert agreed that it was unlikely

that a financial sponsor would be interested in Panera,562 and Petitioner’s valuation

pay an all-cash offer . . . [were] going to be likely to compete with a transaction that JAB
had put forth”); Shaich Tr. 1021:13–16 (“[I]t was just patently clear to me that, knowing
what I know, and knowing these people and where this had played out, that there really
wasn’t a viable interested party.”).
560
JX0491; accord JX0490.
561
Kwak Tr. 1199:9–24; see also id. 1228:18–1229:5.
562
See Redpath Tr. 663:10–664:22.

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expert failed to perform an LBO analysis.563 Petitioners have not shown any flaw

with Morgan Stanley’s focus on strategic bidders. This is especially true when

Morgan Stanley found that financial sponsors could not afford Panera, and identified

only one bidder besides JAB that could afford Panera: Starbucks.564

To Petitioners, Morgan Stanley’s most significant shortcoming is its failure to

evaluate Panera’s standalone value until the final day of the transaction. Petitioners

have not shown that the board did not know Panera’s standalone value before it

approved the merger. The board had a deep knowledge of Panera’s performance

and projections derived from the Five-Year Strategic Plan that it reviewed at every

meeting,565 including the March 1 board meeting.566 The board received and

reviewed Morgan Stanley’s full valuation before voting for the merger.567 That

valuation included a standalone valuation derived from the Five-Year Strategic

Plan.568 Petitioners have not shown that reviewing the valuation earlier would have

convinced the board to reject JAB’s offer, or that the valuation even encouraged

remaining a standalone entity. The deal price fell within the range of the

563
See generally JX0983.
564
Kwak Tr. 1226:21–1227:12; Shaich Tr. 1019:18–1020:5.
565
Shaich Tr. 951:21–952:2.
566
See JX0407 at 1, 46–205; JX0408 at 2–3.
567
See JX0631.
568
Id. at 15–20.

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management case DCF.569 While the board had very little time with the valuation,

this flaw did not undermine value, particularly given the board’s facility with

Panera’s financials.

In all, I find that some of the Company’s pre-signing deal decisions were sub-

optimal. Morgan Stanley’s JAB coverage banker was involved in the deal

communications, Shaich pushed for an offer “not deep in the 300s” before the board

received a full valuation, and the accelerated timeline meant the board had very little

time with Morgan Stanley’s valuation. I find that these issues did not undermine the

sale process “so as to prevent the deal price from serving as a persuasive indicator

of fair value.”570

Panera’s board had a deep knowledge of the market and of Panera’s value.

The board led discussions with the two logical bidders, which were identified by the

board through their extensive personal knowledge, and by Goldman in 2015,

Goldman in 2017, and Morgan Stanley in 2017. The board negotiated with JAB

according to their advisors’ strategy, which was tailored to JAB and executable

based on the board’s working knowledge of Panera’s value. The board authorized

Shaich to lead these negotiations, which he did in reliance on board members and

Morgan Stanley; in full transparency to the board; and in relentless pursuit of value.

569
Id. at 19.
570
Stillwater, 2019 WL 3943851, at *30.
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That strategy successfully extracted two price increases totaling $18.50 per share

and a lower termination fee, and generated a final offer that the board concluded was

fair in view of Morgan Stanley’s comprehensive valuation. Panera’s outreach to the

only two logical buyers resulted in a deal that both the board and its advisors

identified as fair to its stockholders. Accordingly, I find Panera’s deal process to be

persuasive evidence of fair value.

D. Respondent Has Proven $11.56 In Synergies.

Section 262 mandates that I determine fair value “exclusive of any element of

value arising from the accomplishment or expectation of the merger or

consolidation.”571 I must “exclude from any appraisal award the amount of any value

that the selling company’s shareholders would receive because a buyer intends to

operate the subject company, not as a stand-alone going concern, but as a part of a

larger enterprise, from which synergistic gains can be extracted.”572 This excludes

not only “the gains that the particular merger will produce, but also the gains that

might be obtained from any other merger.”573 And because deal price is a persuasive

571
8 Del. C. § 262(h) (“[T]he Court shall determine the fair value of the shares exclusive
of any element of value arising from the accomplishment or expectation of the merger or
consolidation . . . .”).
572
Aruba, 210 A.3d at 133 (quoting Union Ill. 1995 Inv. Ltd. P’ship v. Union Fin. Grp.,
Ltd., 847 A.2d 340, 356 (Del. Ch. 2004)).
573
Id. (citing Solera, 2018 WL 3625644, at *1; Highfields Capital, Ltd. v. AXA Fin., Inc.,
939 A.2d 34, 60–64 (Del. Ch. 2007); Union Ill., 847 A.2d at 355–56).
102
metric of fair value in this case, I must also “excise[] a reasonable estimate of

whatever share of synergy or other value the buyer expects from changes it plans to

make to the company’s ‘going concern’ business plan that has been included in the

purchase price as an inducement to the sale.”574 Respondent bears the burden of

proving any downward adjustment to deal price.

Respondent contends that the Court should excise $21.56 per share from the

deal price because it proved that JAB anticipated, and paid for, synergies from

deploying their characteristic management framework. Respondent identifies three

categories of such synergies: incremental cost savings, incremental leverage tax

benefits, and revenue synergies. Petitioners generally assert that JAB is a financial

sponsor, not a strategic buyer, and specifically challenge Respondent’s evidence of

synergies.

Panera’s board and financial advisors viewed JAB as a strategic buyer,575 and

JAB identified Panera as a strategic acquisition.576 JAB had previously acquired

574
Id. (citing Solera, 2018 WL 3625644, at *1; Highfields Capital, 939 A.2d at 59–61;
Union Ill., 847 A.2d at 343); see also DFC, 172 A.3d at 368 (recognizing that a “going
concern” valuation requires the court to excise “any value that might be attributable to
expected synergies by a buyer, including that share of synergy gains left with the seller as
a part of compensating it for yielding control of the company”).
575
Shaich Tr. 956:4–957:7; Moreton Tr. 824:3–12; Kwak Tr. 1200:18–1201:14.
576
See JX0400 at 3–4.

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Einstein Bros., Caribou Coffee, and Krispy Kreme.577 JAB identified Panera as a

“Fresh Baked / Coffee Adjacency” that would fill gaps in their portfolio by

expanding JAB’s holdings in the coffee and fresh baked lunch category.578 Even

if JAB were not a strategic buyer, labeling them as a financial acquirer would not do

the work Petitioners hope it would. “[I]n theory, if the acquisition of a company by

a financial acquirer is at a market price that includes speculative elements of value

which arise only from the merger, that acquisition value may exceed the going-

concern value.”579 That is the case here.

JAB has a three-pronged “playbook” that they implement after a deal closes.

That playbook addresses people, cost and cash, and growth.580 Under the people

prong, JAB develops a “short list of CEO candidates,” installs a “CFO and

establish[es] Product Management Office,” assesses the “management team,” and

deploys the “JAB ownership model.”581 Under their cost and cash prong, JAB

identifies “[q]uick wins in cash, working capital (particularly AP), [and] cost

577
Id. at 4.
578
Id. at 3–4.
579
Huff Fund Inv. P’ship v. CKx, Inc., 2014 WL 2042797, at *2 (Del. Ch.
May 19, 2014), judgment entered, (Del. Ch. June 17, 2014), aff’d, 2015 WL 631586 (Del.
Feb. 12, 2015) (TABLE); see also Petsmart, 2017 WL 2303599, at *31 n.364 (recognizing
“synergies financial buyers may have with target firms arising from other companies in
their portfolio”).
580
JX0400 at 32.
581
Id.

104
structure” to implement a “cash and cost discipline culture.”582 As for growth, JAB

conducts target-specific analyses and identifies strategic opportunities from

combining companies under its umbrella.583 JAB approached Panera with the

intention of extracting synergies through these plays. JAB’s pre-diligence model,

setting a target price of $290.00, was based in part on value gains from implementing

their playbook at Panera.584

First, JAB measured the investment opportunity for its cash and cost prong,

recognizing Panera’s lack of “discipline culture” in working capital and supply

chain.585 JAB’s initial investment model outlined $300 million in working capital

savings.586 JAB had successfully implemented working capital changes at Krispy

Kreme, Caribou Coffee, and Peet’s Coffee.587 JAB planned similar changes for

582
Id.
583
Id.
584
See id. at 43–44.
585
Id. at 32, 34, 37.
586
Id. at 43.
587
JX0554 at 15 (“Cost rationalization and synergies. JAB’s plans to achieve cost
synergies and working capital improvements could fail to materialize . . . . Mitigating
factors: JAB has a long-track record of successful acquisitions and integration, and have
delivered expected cost savings on recent deals including Keurig Green Mountain and
Krispy Kreme.”); JX0589 at 19 (“Working Capital—Panera currently has ~ 4 days payable
compared to Keurig at ~50, Caribou at >90, and Peet’s at ~ 85.”); accord Bell Tr. 1121:13–
1122:10, 1123:3–23; Hubbard Tr. 1495:8–19.

105
Panera by increasing the Company’s days payable outstanding from about four to

about fifty to ninety days.588

As for cost savings opportunities, JAB identified potential savings in SG&A,

store level efficiency, and supply chain amounting to $70 to over $100 million.589

To accomplish this, JAB hoped to cut public company expenses, optimize franchise

costs, introduce procurement savings, and reduce waste.590

After performing due diligence, JAB concluded their diligence confirmed

“significant” opportunities for cash and for cost savings.591 JAB confirmed $300 to

$500 million by maximizing working capital, more than $30 million in procurement

savings, $18 million in SG&A optimization, $15 million in supply chain

optimization, and $2.5 to $5 million in public company costs.592 JAB expanded

working capital estimates as “[Panera] currently has the lowest [days payable

outstanding] across nearly all public peers and much lower than other JAB Beech

588
JX0982 at 51; accord Hubbard Tr. 1666:5–13.
589
JX0400 at 37.
590
Id.; JX0589 at 23.
591
See JX0593 at 49–50.
592
JX0593 at 49–50, 52–54, 78; JX0982 at 49–50; Bell Tr. 1131:12–22. Shaked agreed
with the public company cost savings. See Shaked Tr. 368:4–16.

106
assets.”593 At this point, JAB recognized that they would have to pay more than their

early target price594 and raised their internal target offer from $290.00 to $305.00.595

In addition to the management playbook, JAB applied their bedrock

negotiation playbook principle of not conditioning their deal on receiving financing

approval, and securing financing during the diligence phase.596 Respondent noted

that because JAB financed $3 billion for the deal, Panera would carry greater debt

than it did as a standalone value.597 JAB quantified their anticipated debt and

associated tax effects when they formulated their target deal price.598

Hubbard found that “[i]nternal documents show that JAB anticipated

significant synergies from the acquisition of Panera, and factored these synergies

into their valuation of Panera.”599 Hubbard found that with increased debt, Panera

would have higher interest tax deductions, generating a merger-specific tax synergy

593
JX0593 at 49.
594
Bell Tr. 1133:9–18.
595
See JX0593 at 65.
596
Bell Tr. 1106:21–1107:23.
597
Hubbard Tr. 1493:24–1494:7.
598
See JX0593 at 69.
599
JX0982 at 41.

107
of $9.18 per share.600 Hubbard agreed with the cost and cash synergies as well,

finding synergies totaling $37.29 per share.

Petitioners argue that these cost savings and tax synergies are not merger-

specific synergies because Panera management could have also made these

changes.601 In support, Petitioners cite Huff Fund Investment Partnership v. CKx,

Inc., in which this Court found that the record contained insufficient evidence to

support a finding that the respondent formed its bid on, or believed that there were,

merger-specific cost savings.602

That is not true of this case. Panera’s management culture and priorities did

not support the changes JAB intended to make. Panera was in the “habit” of paying

its vendors within four to six days603 and invested in extensive initiatives.604 JAB’s

“Cash Opportunities” arose from Panera’s failure to “focus on working capital at

all” while spending “top dollar to get the best without ever re-engineering costs out

600
Id. at 54; Hubbard Tr. 1493:24–1494:7.
601
Petitioners’ expert testified “the company elected not to” increase its days payable
outstanding. Shaked Tr. 451:2–8.
602
2014 WL 2042797, at *3. The Court explained it was not “reaching the theoretical
question of under what circumstances cost-savings may constitute synergies excludable
from going-concern value under Section 262(h).” Id.
603
Hurst Dep. 219:4–23 (“[T]he general philosophy had been pay quickly, use that as
leverage in some of the vendor relationships to actually get a lower price. But it ultimately
became just the habit of Panera.”); accord Shaked Tr. 451:21–452:13.
604
JX0984 at 42 (“Panera invested over $120 million in IT from mid-2014 through mid-
2017.”).

108
of the business.”605 Panera forecasted cost savings, but limited its changes to

sourcing and process improvements.606 Any overlap between Panera’s forecast and

JAB’s playbook demonstrates differences in scale. As an example, Panera evaluated

“FDF” and G&A savings in its forecast, predicting new cost savings between

$300,000 and $600,000 each year from 2018–2021;607 JAB projected $18 million in

its first year alone.608 JAB believed that it could achieve much greater savings

because of its expertise in executing those savings across their portfolio

companies.609 When Hurst saw JAB’s plan, he thought JAB had “lost their freakin’

minds based on SG&A savings.”610 JAB contemplated “Day 1 [p]laybook

implementation.”611

As for the tax synergies, Petitioners argue that Panera could “re-leverage its

balance sheet as it saw fit” so the tax deductions associated with JAB’s $3 billion

financing were not an element of value arising from the merger.612 Petitioners

605
JX0400 at 37.
606
See JX0607 at 181–85.
607
See id. at 185.
608
See JX0593 at 78.
609
Bell Tr. 1122:4–1123:23; cf. JX0904 at 1.
610
Hurst Dep. at 203:8–24 (internal quotation marks omitted).
611
See JX0593 at 48.
612
PTO ¶ 76.

109
concede that Panera’s debt increased “dramatically” after the transaction, from $480

million to $2.7 billion.613 Here, unlike in Huff, the evidence shows JAB had similarly

financed other deals in the past and saw value in doing it again with Panera, while

Panera intentionally maintained low debt.614

The preponderance of the evidence demonstrates that JAB formed its bid in

anticipation of applying its management playbook to Panera to generate merger-

specific savings. Before JAB made an offer, it recognized that it could realize

working capital and cost savings when it ran its plays on Panera. JAB formed its

initial offer in view of that predicted value. JAB confirmed it could realize that value

during due diligence, and that conclusion informed their offer price. JAB predicted

additional value in tax savings from increasing the Company’s debt through JAB’s

characteristic financing technique. Hubbard calculated the combined value of these

synergies at $37.29 per share.615 I find that by running its plays on Panera, JAB

predicted $37.29 in value arising out of the merger.

Hubbard estimated that JAB built in 31% of these synergies, or $11.56, into

the merger price.616 In support, Hubbard cites a 2013 Boston Consulting Group

613
D.I. 139 at 58.
614
JX0593 at 77 (“The company had $332.0 million of net debt in December 2016.”);
JX0238 at 16.
615
JX0982 at 55.
616
Id. at 55–56.

110
study of 365 deals that analyzes the “median portion of synergies shared with the

seller.”617 Petitioners object to the BCG study’s breadth and its lack of specificity

across industry or comparable companies. Respondent cites Solera for the

proposition that this study is an appropriate estimation of synergies belonging to the

buyer.618 But the adoption of a methodology, expert opinion, or metric in one

appraisal action does not mandate its adoption in a different appraisal action.619 This

Court’s previous acceptance of Hubbard’s proffered study is not conclusive in this

case. Instead, I find that Petitioners have not cast doubt on the reliability of this

study, or put forward a more appropriate percentage. Respondent has proven

deduction of cost and tax synergies of $11.56 per share by a preponderance of the

evidence.620

617
Solera, 2018 WL 3625644, at *28 & n.364.
618
Id. at *28 & n.364.
619
Jarden, 2019 WL 3244085, at *1 (“The appraisal exercise is, at bottom, a fact-finding
exercise, and our courts must appreciate that, by functional imperative, the evidence,
including expert evidence, in one appraisal case will be different from the evidence
presented in any other appraisal case.”); accord Stillwater, 2019 WL 3943851, at *20
(“[T]he approach that an expert espouses may have met ‘the approval of this court on prior
occasions,’ but may be rejected in a later case if not presented persuasively or if ‘the
relevant professional community has mined additional data and pondered the reliability of
past practice and come, by a healthy weight of reasoned opinion, to believe that a different
practice should become the norm . . . .’” (quoting Golden Telecom Trial, 993 A.2d at 517)).
620
Petitioners argue that the Court should not agree with Hubbard’s analysis because he
“ignores the negative synergies, or costs, that resulted from the acquisition.” D.I. 140 at
81. Petitioners have not shown that JAB failed to consider these costs when JAB evaluated

111
 I turn now to JAB’s third playbook prong of growth, in which Respondent

sees revenue synergies. Unlike the cost and cash playbook prongs, JAB did not

quantify these growth opportunities in its models. JAB recognized that while it is

“relatively simplistic to quantify potential cost savings[,] [i]t’s much more difficult

to quantify for-sure growth areas, even though they may be extremely important.”621

Leading up to and throughout trial, Respondent and its expert presented a fair value

that did not quantify any revenue synergies attributable to JAB’s growth

opportunities. This is consistent with the record evidence and both parties’ experts’

opinions.

In their pre-diligence model, JAB identified growth opportunities for coffee,

technology, international expansion, and CPG.622 At a March 31 meeting, Panera

also identified opportunities in international franchising, CPG (including coffee),

and technology.623 After this meeting, on April 2, JAB created its post-diligence

model, expressly clarifying that CPG, coffee, and international expansion were

their implementation of their playbook, calculated Panera’s resulting value, or formed their
offer price. I do not find that this undermines Hubbard’s synergy analysis.
621
Bell Tr. 1127:13–21.
622
See JX0400 at 38–41. Possible plans included leveraging Panera’s technology platform
across JAB’s portfolio, enhancing Panera’s in-store coffee program, focusing on CPG,
increasing K-cup sales, and expanding internationally. Id. at 32.
623
See JX0564 at 131, 141–152, 154–158.

112
“Growth Areas Not in [the] Investment Model[.]”624 In this same model, as

explained, JAB increased its internal target price to $305.00 based on quantified

anticipated cost savings.625

At an April 3 meeting, the parties again discussed opportunities for CPG,

coffee, international expansion, technology, as well as marketing, real estate, food

sourcing, and franchising.626 Bell testified that these strategic growth opportunities

played a role in JAB’s decision to increase their offer from $305.00 to $315.00627

because JAB

did some back-of-the-envelope math and got excited about
it. But since we had no discussion with anyone about it,
and it was a short period of time, we didn’t, quote/unquote,
put it in the model, financially. But I will tell you—you
even heard it earlier—coffee was core to our strategy of
doing this. It’s just something that was difficult for us to
quantify at the time we were doing diligence.628

624
See JX0593 at 57–62. Although JAB had developed a “coffee procurement savings
program,” they did not include these synergies in the post-diligence model. Id. at 60–61;
accord Bell Tr. 1123:3–1126:19, 1129:2–24.
625
See JX0593 at 65.
626
See JX0607 at 145, 155–169, 171–175, 229.
627
See Bell Tr. 1135:1–10 (“Q. And when you went higher, to 315, did those strategic
opportunities or synergies play a role in the decision to raise your offer from 305 to 315?
A. I would say they did, because, you know, again, as a long-term holder, we ended up for
this one going to a price that was below . . . a return. That we priced into a return that was
below what we initially thought we would have to do. But we took a big leap of faith on
these strategic opportunities, which we didn’t quantify in the model.”).
628
Id. 1129:5–24.

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Bell testified that JAB took a “leap of faith” on these “strategic opportunities,” and

justified the $10.00 increase with their “back-of-the-envelope” calculations.629

Later, Bell testified that coffee procurement was not a “back-of-the-envelope”

calculation because JAB “hadn’t done the analysis.”630

After trial, Respondent latched onto a new synergy theory that deducted

$10.00 per share for these growth or revenue synergies. Respondent’s post-trial

position finds no support from its expert. Hubbard did not include any revenue

synergies in his analysis.631 When pressed, Hubbard affirmatively declined to adopt

Bell’s testimony, as he saw no support for it in the trial exhibits or in his work for

Respondent.632 “Thus, in its zeal to reach a desired litigation outcome, Respondent

finds itself in the awkward position of advancing a position at odds with its own

expert . . . .”633 At post-trial argument, Respondent’s counsel explained that they

“never asked [Hubbard] to adjust his opinion” because the trial strategy required

629
Id. 1132:5–21; 1134:19–1135:10.
630
Id. 1168:8–21 (“Q. Coffee procurement, was that one of the ones that was on the back
of the envelope? A. I don’t even think it was that, because we hadn’t done the analysis.”).
631
See JX0982 at 55–56; accord Hubbard Tr. 1593:17–1594:3, 1694:22–1695:8.
632
Hubbard Tr. 1482:18–24, 1663:6–14, 1664:20–24, 1665:24–1666:4.
633
Manichaean Capital, LLC v. SourceHOV, C.A. No. 2017-0673-JRS, at 54 (Del. Ch.
Jan. 30, 2020).

114
Hubbard to stick with his synergy analysis, leaving counsel to argue the additional

$10.00 in synergies in post-trial briefing.634

This series of events casts doubt over Respondent’s post-trial position on

revenue synergies. At bottom, Respondent puts forward conclusory fact testimony

contradicted by JAB’s contemporaneous financial modeling and rejected by its

expert. There is no evidence that JAB quantified revenue synergies. JAB’s financial

modeling assumes the opposite: “no uplift . . . from any strategic synergy

opportunities.”635 JAB’s contemplation of potential growth opportunities is

insufficient to prove ten dollars’ worth of revenue synergies in JAB’s best and final

offer price. Further, JAB provided no evidence to support the conclusion that all ten

dollars inured to JAB’s benefit and should be excised from the amount paid to

stockholders. Hubbard did not find any revenue synergies, and therefore did not

apportion any. Respondent has failed to prove revenue synergies that would support

an excise of $10.00 from the deal price. In all, Respondent has proven $11.56 from

its cost savings and tax synergies. The deal price minus synergies valuation method

yields a price per share of $303.44.

634
D.I. 154 at 117:21–120:13 (“We never asked him to adjust his opinion. . . . And, you
know, frankly, Your Honor, that’s a trial strategy decision that I made, right? These are
the sort of things that we do. And I still think that we have a strong record evidence for
this $10.”).
635
JX0593 at 64.

115
 E. The Supplied Alternative Valuation Methodologies Are
Unreliable.

While Respondent asserts that deal price minus synergies deserves dispositive

weight, Petitioners press three alternative valuation methodologies: discounted cash

flow (“DCF”), comparable companies, and precedent transactions.636 In the context

of a persuasive deal price, I disregard those methodologies for the reasons that

follow.

1. Petitioners have not proven their DCF model’s reliability.

“While the particular assumptions underlying its application may always be

challenged in any particular case, the validity of [the DCF] technique qua valuation

methodology is no longer open to question.”637 Nevertheless, the Supreme Court

“cautioned against using the DCF methodology when market-based indicators are

636
Neither party argues in favor of the unaffected stock price.
637
Pinson, 1989 WL 17438, at *8 n.11. “The DCF model entails three basic components:
an estimation of net cash flows that the firm will generate and when, over some period; a
terminal or residual value equal to the future value, as of the end of the projection period,
of the firm’s cash flows beyond the projection period; and finally a cost of capital with
which to discount to a present value both the projected net cash flows and the estimated
terminal or residual value.” Cede & Co. v. Technicolor, Inc., 1990 WL 161084, at *7 (Del.
Ch. Oct. 19, 1990).

116
available.”638 Compared to a persuasive, market-based deal price metric, “the DCF

technique ‘is necessarily a second-best method to derive value.’”639

Petitioners and Respondent each introduced a DCF valuation prepared by

their expert. Hubbard introduced a DCF that generated a value of $291.71 per

share.640 He gave his DCF no independent weight, but viewed it solely as

corroborative of his deal-price-minus-synergies value of $303.44.641

In a “very subjective” weighting exercise, Shaked gave sixty percent weight

to his DCF model, which generated a value of $354.00 per share, exceeding the deal

price by $39.00.642 By this model, Shaked asserted over a billion dollars was left on

the table.643 The experts are approximately $63.00 per share apart. Because

Petitioners are urging the Court to give significant weight to Shaked’s DCF model,

they bear the burden of convincing the Court that the model is sufficiently reliable

to merit weight in the face of Panera’s reliable deal process.

638
Stillwater, 2019 WL 3943851, at *60 (citing Dell, 177 A.3d at 37–38, and DFC, 172
A.3d at 369–370, 369 n.118).
639
Id. at *61 (quoting Union Ill., 847 A.2d at 359).
640
JX0982 at 84.
641
As explained, Hubbard did not accept Respondent’s post-trial market value of $293.44.
642
Shaked Tr. 179:12–181:12, 239:24–241:17.
643
Hubbard Tr. 1483:15–1584:11.

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 Petitioners have fallen short: Shaked’s model as presented at trial is of

questionable reliability. The primary flaw is Shaked’s concession regarding the

investment rate for the terminal period. In his report, he put forward an investment

rate of 3.1% that he “conservative[ly]” cushioned with a $116 million buffer, as

“kind of an extra slack for the maintenance.”644

Hubbard put forward a 35.6% investment rate.645 This rate was based on the

principle that “growth isn’t free,”646 particularly in the extraordinarily competitive

restaurant industry.647 He anchored his investment rate in Panera’s historical

investment rate,648 and utilized the formula IR=g/RONIC, where the investment rate

equals the terminal growth rate over the return on new invested capital.649 Hubbard

set RONIC equal to the weighted average cost of capital (“WACC”) on the premise

that “[i]n a competitive industry, abnormal profits tend to vanish over time.”650 In

644
Shaked Tr. 203:9–19 (explaining the reason for the buffer as a hypothetical: “let’s
assume that in my terminal year, the maintenance will be 259, not 143. This is 81 percent
increase compared to what it used to be. Last year is 143, and I assume that it will be 259.
So I build in $116 million, kind of an extra slack for the maintenance”).
645
JX0982 at 95–96.
646
D.I. 141 at 67 (citing Hubbard Tr. 1536:22–1537:7).
647
Id. (citing JX0982 at 14–20; Goldin Tr. 1409:22–1411:24).
648
See id. at 68 (citing Hubbard Tr. 1546:17–1547:6; 1687:7–19).
649
JX0982 at 96.
650
Id.

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Respondent’s view, Shaked’s original investment rate assumed “startlingly high

returns on ROIC [([return on invested capital)] forever.”651

When Shaked took the stand at trial, he addressed this criticism by presenting

for the first time a “corrected” ROIC chart with an investment rate that diverged

from, and was significantly higher than, the investment rate in his report.652 Shaked

did not base his “corrected” chart on the analysis found in his report or mentioned

in his deposition. Notwithstanding this correction, Shaked did not adjust his DCF

with the “corrected” investment rate.

When Hubbard applied Shaked’s corrected investment rate to his other DCF

inputs, he found “the valuation attached to this [investment rate] is $100 off the one

he is tendering.”653 Hubbard testified that if Shaked were to plug his corrected 33%

investment rate into his DCF, this would erase much of the difference between the

experts’ DCF calculations.654

After Hubbard’s testimony, Shaked took the stand as a rebuttal witness, but

did not address his failure to adjust his DCF in light of his corrected investment

651
See D.I. 141 at 63.
652
Shaked Direct Demonstrative Deck at 148 (“Assumed Panera will be using 2/3 of its
net income to pay out dividends and/or repurchase shares, and will have 1/3 of it flow to
retained earnings (grow book value of equity).”); see Hubbard Tr. 1571:21–1572:18.
653
Hubbard Tr. 1571:21–1572:18.
654
See id. 1570:9–1571:15.

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rate.655 Shaked’s trial concession on his investment rate weakens his credibility: he

abandoned the rate in his report after learning of Hubbard’s criticisms, but stood by

his DCF reliant on that rate, even after Hubbard pointed out the inconsistency.

Shaked’s original, unadjusted investment rate is a significant driver of his

DCF model. Hubbard pointed to this aspect of Shaked’s model to explain the wild

swings in value when substituting different perpetuity growth rate (“PGR”) inputs.

Under Shaked’s initial model, inputting the different growth rates from banker-

supplied DCFs creates outputs that are $1.3 billion apart.656 This sensitivity to PGR

arises because Shaked initially assumed such a low investment rate while predicting

outsized growth.657 Because “the perpetuity growth rate and the investment rate are

linked,” changing the PGR in Shaked’s original model would cause “a very large

swing in his DCF value.”658 Shaked described his model’s sensitivity to PGR based

on his low investment rate as a “built-in problem.”659 Given the significant impact

of Shaked’s initial investment rate on his DCF, his concession on that input and

failure to adjust the model introduces fatal unreliability.

655
See Shaked Tr. 1699:14–1742:7.
656
See id. 486:5–18.
657
See Hubbard Tr. 1536:3–21.
658
Id. 1572:19–1574:6.
659
Shaked Tr. 311:11–312:8.

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 Above, I determined that the market guides my analysis of this transaction.

The Supreme Court has “cautioned against using the DCF methodology when

market-based indicators are available.”660 Shaked’s shift in his investment rate, the

fact that he did not adjust his DCF to accommodate that shift, and the significance

of his original investment rate to the output of his DCF render his model unreliable.

Petitioners have failed to carry their burden to establish that Shaked’s DCF model is

a sufficiently reliable indicator, particularly in the shadow of a reliable market-based

deal price. I do not attribute any weight to this metric.661

2. There is not a suitable peer group for a reliable
comparative companies analysis.

“[B]efore a comparable companies multiples analysis can be undertaken with

any measure of reliability, it is necessary to establish a suitable peer group through

appropriate empirical analysis.”662 “If, and only if, a proper peer set can be selected,

the next step in the comparable companies analysis is to select an appropriate

multiple and then determine where on the distribution of peers the target company

falls.”663 Where the experts’ identified companies are “too divergent from [the

660
See Dell, 177 A.3d at 37–38; DFC, 172 A.3d at 369–370, 369 n.118.
661
See Solera, 2018 WL 3625644, at *29 (citing Union Ill., 847 A.2d at 359); id. at *32.
662
Jarden, 2019 WL 3244085, at *32.
663
Id. at *33.

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company] in terms of size, public status, and products, to form meaningful analogs

for valuation purposes,”664 this Court will disregard this valuation metric.665

The parties dispute the relevant peer group and argue that neither expert tested

the reasonableness of the comparable companies selected. Hubbard selected

comparable companies by reviewing equity analysts’ reports in the year before the

merger date and selecting the firms mentioned by three or more analysts at least

once.666 As a result, Hubbard included companies that operate outside the fast casual

segment, including full-service restaurants like Brinker International, Darden

Restaurants, Texas Roadhouse, and The Cheesecake Factory.667 Hubbard found this

analysis produced fair values ranging from $218.58 to $310.99668; he did not afford

any weight to his comparable companies analysis, but viewed it as corroborative of

deal price.669 Petitioners question Hubbard’s peer group as it includes much smaller

664
Hoyd v. Trussway Hldgs., LLC, 2019 WL 994048, at *5 (Del. Ch. Feb. 28, 2019).
665
See Merion Capital, L.P. v. 3M Cogent, Inc., 2013 WL 3793896, at *5 (Del. Ch.
July 8, 2013) (“[W]hen the ‘comparables’ involve companies that offer different products
or services, are at a different stage in their growth cycle, or have vastly different multiples,
a comparable companies or comparable transactions analysis is inappropriate.”).
666
JX0982 at 115.
667
Hubbard Dep. 360:5–361:23.
668
JX0982 at 12–13, 120–21.
669
Id. at 123.

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companies, including sectors other than fast casual, and does not widely overlap with

the comparable companies the bankers identified.

Meanwhile, Respondent highlights that weakness in Shaked’s metric. Shaked

used a peer group identified by at least 75% of bankers involved. 670 These results

exclude all of the fast casual companies the bankers contemporaneously identified,

except for Chipotle.671 It also included and excluded similarly situated companies.

For example, Shaked included McDonald’s and Burger King, but excluded

Wendy’s; he included Domino’s, but excluded Papa John’s.672 Shaked found this

approach resulted in fair values falling between $377.00 and $382.00 per share; he

weighed this valuation at 30%.673

Where an expert defers to a peer set without conducting a “meaningful,

independent assessment of comparability” between the seller’s business and the

business of its peer companies it “is not useful and, frankly, not credible.”674 Neither

expert presents a reliable empirical analysis to show a suitable peer group; both sets

have material weaknesses. For that reason, I do not find comparable companies as

a fair measure of value. Instead, I view both parties’ comparable companies analyses

670
Shaked Tr. 439:23–440:18.
671
Compare JX0983 at 150–51, with JX0554 at 44, and JX0589 at 39, and JX0826 at 37.
672
See Shaked Tr. 441:9–14, 439:16–22.
673
JX0983 at 59–61.
674
Jarden, 2019 WL 3244085, at *34.
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as an attempt to corroborate their preferred valuation. I decline to afford them any

weight.

3. There are insufficient comparable precedent transactions
to generate a reliable valuation metric.

Both parties’ experts performed a precedent transaction analysis.675 Hubbard

selected precedent transactions by reviewing eleven transactions that Morgan

Stanley included in its April 4, 2017 presentation to the board.676 He “calculated

valuations that are corroborative using multiples of EV/EBITDA based on . . .

precedent transactions” that led to a price per share range of $143.58 to $236.22. 677

Hubbard used this data point as corroborative and gave it no weight678 because a

precedent transaction analysis is “model-based” while “the market evidence is the

real world.”679

Shaked conducted a precedent transaction analysis by using data from the

FactSet database filtered by acquisitions of restaurant companies in the United States

or Canada with an enterprise value over $1 billion.680 He then compared Panera’s

675
See JX0982 at 121–22; JX1023; JX0983 at 59–60.
676
JX0982 at 121.
677
See id. at 123.
678
See id.
679
Hubbard Tr. 1481:13–23.
680
JX0983 at 59.

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forecasted revenue growth to the upper quartile EBITDA multiples of three

comparative transactions and conducted an analysis that led to a price per share range

of $338.00 to $361.00 with a midpoint of $350.00 per share.681 Even though Shaked

explained at trial that he “was not really very thrilled with getting only three

transactions[,]”682 he still afforded it 10% weight.

The accuracy of these analyses depends, as with a comparable companies

analysis, on the closeness of the comparable transaction. As Morgan Stanley

recognized, there was not a “particular transaction that should serve as a direct

comparable.”683 I find that neither sample size is reliable enough to afford it weight.

F. Respondent Is Not Entitled To A Refund Of Its Prepayment.

I turn now to the relief sought. The Company prepaid Dissenting

Stockholders the full deal price, or $315.00 per share. Petitioners have obtained

more than fair value, which I have found to be $303.44. The Company seeks a

refund in the amount of the deducted synergies, or the difference between fair value

and prepayment, plus interest on that amount. Petitioners and Respondent did not

agree to a clawback provision in the event Respondent overpaid. Respondent cites

no support for its request. Like others who have thought about this issue, including

681
Id. at 59–60.
682
Shaked Tr. 255:4–17; see also id. 180:24–181:12.
683
Kwak Tr. 1210:8–1211:6.
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counsel’s firm, I find the request for a refund has no present basis in Delaware’s

appraisal statute.684

Under Section 262(h), a surviving corporation seeking to lessen the significant

amount of interest that can otherwise accrue in an appraisal action can prepay

petitioning stockholders “an amount in cash.”685 As the General Assembly

explained, “[t]here is no requirement or inference that the amount so paid by the

surviving corporation is equal to, greater than, or less than the fair value of the shares

to be appraised.”686 Upon prepayment, interest accrues only upon the sum of the

difference between the amount prepaid and the judicially determined fair value, and

any interest accrued to date unless paid at that time.687 Section 262 does not

684
See generally Charles K. Korsmo & Minor Myers, Interest in Appraisal, 42 J. Corp. L.
109 (2016); R. Garrett Rice, Give Me Back My Money: A Proposed Amendment to
Delaware’s Prepayment System in Statutory Appraisal Cases, 73 Bus. Law 1051 (2018);
Abigail Pickering Bomba et al., Proposed Appraisal Statute Amendments Would Permit
Companies To Reduce Their Interest Cost—Likely To Discourage “Weaker” Appraisal
Claims And Make Settlement Of “Stronger Claims” Harder, Fried Frank M&A Briefing
(Mar. 23, 2015), https://www.friedfrank.com/siteFiles/Publications/FINAL%20-%203-
23-2015%20-%20Proposed%20Appraisal%20Statute%20Amendments.pdf; Arthur R.
Bookout et al., Delaware Appraisal Actions: When Does It Make Sense to Prepay?,
Skadden, Arps, Slate, Meagher & Flom LLP (May 29, 2018),
https://www.skadden.com/insights/publications/2018/05/insights-the-delaware-
edition/delaware-appraisal-actions.
685
8 Del. C. § 262(h).
686
Del. H.B. 371, 148th Gen. Assem., 80 Del. Laws, ch. 265, §§ 8–11 (2016).
687
8 Del. C. § 262(h).

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explicitly contemplate any refund. Accordingly, appraisal litigants sometimes

stipulate to a clawback provision in their prepayment agreement.688

“Under Delaware law, the appraisal remedy is entirely a creature of statute.”689

“The goal of statutory construction is to determine and give effect to legislative

intent.”690 “The courts may not engraft upon a statute language which has been

clearly excluded therefrom by the Legislature.”691 “[S]uch action would place the

court in a position of making law.”692 Nor may this Court “assume that the omission

was the result of an oversight on the part of the General Assembly.”693 Where, as

with Section 262, “a statute is silent on a particular matter, the otherwise detailed

nature of the statute in other respects can be significant.”694 “[I]n drafting Section

688
E.g., Artic Invs. LLC v. Medivation, Inc., C.A. No. 2017-0009-JRS, D.I. 20 at 5 (Del.
Ch. Mar. 6, 2016) (stipulating for clawback rights if the prepayment amount were to exceed
the Court’s fair value determination of the appraisal shares along with any accrued
interest); see Rice, supra note 684, at 1082 (recognizing that petitioners sometimes
stipulate to clawbacks).
689
Ala. By-Prods. Corp. v. Cede & Co. ex rel. Shearson Lehman Bros., 657 A.2d 254, 258
(Del. 1995) (citation and internal quotations omitted).
690
One-Pie Invs., LLC v. Jackson, 43 A.3d 911, 914 (Del. 2012) (quoting LeVan v. Indep.
Mall, Inc., 940 A.2d 929, 932 (Del. 2007)).
691
Giuricich v. Emtrol Corp., 449 A.2d 232, 238 (Del. 1982).
692
Goldstein v. Mun. Court for City of Wilm., 1991 WL 53830, at *5 (Del. Super.
Jan. 7, 1991) (citing State v. Rose, 132 A. 864, 867 (Del. Super. 1926)).
693
Giuricich, 449 A.2d at 238.
694
Terex Corp. v. S. Track & Pump, Inc., 117 A.3d 537, 544 (Del. 2015), as
revised (June 16, 2015).

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262(h), the General Assembly made a determination as to the proper balance of the

competing interests of appraisal petitioners, who have been cashed out of their

preferred investment and denied the ability to invest the merger consideration in the

market pending outcome of the case, and respondents, against whom too large an

interest award may operate as a penalty.”695

Here, the only permissible conclusion is fortunately a logical one: the General

Assembly intended to omit a refund mechanism. In 2016, the General Assembly

enacted an optional and scalable prepayment scheme without mention of a refund.

It did so in the shadow of the Model Business Corporation Act (the “Model Act”),

adopted by the majority of other states, which is a mandatory and fixed prepayment

scheme: it mandates prepayment of what the corporation believes is fair value to

stockholders who purchased their stock before the merger was announced, and

permits it for stock acquired after the merger announcement.696 Other amendments

to Section 262 have tracked the Model Act, evidencing a legislative awareness of its

content.697 The Model Act is silent on the effects of overpayment, like Section 262,

695
Huff Fund Inv. P’ship v. CKx, Inc., 2014 WL 545958, at *3 (Del. Ch. Feb. 12, 2014).
696
Model Bus. Corp. Act § 13.24(a) (2016).
697
Compare Del. H.B. 160, 144th Gen. Assem., 76 Del. Laws, ch. 145 §§ 13, 16 (2007),
and 8 Del. C. § 262(h), with Model Bus. Corp. Act § 13.01 (adopting the legal rate as the
applicable interest rate for dissenting stockholders).

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and has been interpreted to allow petitioning stockholders to keep any

overpayment.698

Commentators have also interpreted Section 262’s silence as an indication

that overpayment is not recoverable.699 This Court has not yet resolved the issue.700

I conclude Section 262 does not explicitly provide for a refund, and that therefore I

cannot order one. I am not the first to conclude that the Court must stay within the

bounds of Section 262’s plain language. In 1948, the Delaware Supreme Court

concluded that because the operative version of Section 262 did not provide for

interest, the judiciary could not award it.701 More recently, before the prepayment

provision was enacted, Vice Chancellor Glasscock found he was unable to order

698
See Model Bus. Corp. Act § 13.30(e); see also Rice, supra note 684, at 184–86; Mary
Siegel, An Appraisal of the Model Business Corporation Act’s Appraisal Rights
Provisions, 74 Law & Contemp. Probs. 231, 236 (2011) (“[I]f the corporation’s estimate
of fair value is greater than the amount ultimately determined by the court, the corporation
will have paid this greater amount to the shareholder without any statutory right to require
the shareholder to return the difference between the court’s determination of fair value and
the corporation’s estimate of fair value.” (footnote omitted)).
699
See Korsmo & Meyers, supra note 864, at 125; Bookout et al., supra note 864.
700
In Artic Investments LLC v. Medication, Inc., the company argued under an unjust
enrichment theory that the Court should find the corporation entitled to a refund for
overpayment after trial. See C.A. No. 2017-0009-JRS, D.I. 15 at 24 (Del. Ch. Mar. 28,
2017). The Court did not resolve this issue, or grant the party’s proposed stipulation for a
clawback provision, before the parties stipulated to dismissal. See id. D.I. 23 (Del. Ch.
Mar. 6, 2018).
701
Meade v. Pac. Gamble Robinson Co., 58 A.2d 415, 417–18 (Del. 1948).

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prepayment.702 After those exercises in judicial restraint, amendments in the statute

soon followed.703 I will not encroach on the General Assembly’s prerogative.704

III. CONCLUSION

For the reasons discussed above, I find the fair value of the Company’s

common stock at time of the merger was $303.44, calculated as deal price minus

synergies. Respondent chose to prepay the $315.00 deal price to the Dissenting

Stockholders. Because Respondent is not entitled to a refund of the difference

between $315.00 and $303.44, Petitioners have received more than fair value. The

parties shall submit a stipulated implementing order.

702
See Huff, 2014 WL 545958 at *3.
703
See 47 Del. Laws ch. 136, § 7 (1949) (affording the Court the power to award interest);
Del. H.B. 371, 148th Gen. Assem., 80 Del. Laws, ch. 265, §§ 8–11 (2016) (creating the
possibility of prepayment).
704
“[T]he expression of dictum is ordinarily to be avoided.” State ex rel. Smith v. Carey,
112 A.2d 26, 28 (Del. 1955). Accordingly, I note only that refraining from awarding a
refund here does not offend my sensibilities. A refund is not available under the Model
Act, which tethers the mandatory prepayment amount to the corporation’s position on fair
value, and therefore gives the prepayment amount significance in the litigation context.
Under the DGCL, prepayment is optional, and a corporation can pay any amount it chooses
without making a commitment to fair value. Prepayment under the DGCL is a business
decision, made with knowledge of the company’s sale process that is superior to the
stockholder’s, and with counsel’s prediction of how long the litigation may take and how
much interest may accrue. In my view, expressed in dictum, the case for a refund under
the DGCL is less compelling than under the Model Act, which does not provide for one.

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