Also, the Court did not find the target
companies from the transactions to
be comparable to Trados because
they were enterprise software
companies while Trados only
generated 38% of revenue from
enterprise software sales. Because
“enterprise software companies
were more highly valued than
Trados’ residual business” which was
services-focused, the remainder of
Trados business was less valuable.
The Plaintiff’s expert did not
adequately justify the way he
weighted the comparable company
transaction methodologies, which
clearly resulted in values higher than
Trados’ purchase price compared to
the methodology from JMP’s 2005
analysis for Trados. In contrast,
the Defendant’s expert relied on a
DCF analysis, which resulted in an
equity value of $51.9 million and
was less than the $60 million offer
that Trados received. The Court
found the discount rate of 18.5%
that was applied to be conservative
as their own research showed that
the Defendant’s expert could have
used a discount rate of 21.82%. Also,
the Plaintiff did not object to the
discount rate that was applied. The
Court found the forecast used in the
DCF to be reasonable and that the
Defendant’s expert made “plaintiff-
friendly assumptions” in the forecast.
The Court’s Conclusion
The Court found that there was no
value to the Company’s common
stock as it had no value if Trados
continued to be a stand-alone
company. They also found that there
was no breach of duty as the Trados’
Board was able to prove that the
merger was fair.
4
| Valuation Vantage
Spring-Summer 2015
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Plaintiff Unable to Prove that Common Shareholders ...
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