AQR challenges $8.4bn Clearwater buyout in latest appraisal arbitrage bet

AQR Capital Management has challenged the $8.4 billion buyout of Clearwater Analytics Holdings, highlighting the growing trend of hedge funds utilizing Delaware’s appraisal process to secure higher returns from completed M&A deals, according to a Bloomberg report. The hedge fund, which manages around $242 billion in assets, filed a petition with Delaware’s Court of Chancery requesting a judicial determination of Clearwater’s share value following the June acquisition by Permira, Warburg Pincus, and Francisco Partners.

Shareholders received $24.55 per share in the deal, valued at approximately $81.3 million for AQR’s holdings of 3.3 million shares. AQR argues that the transaction price and sale process failed to provide fair value to unaffiliated public investors due to conflicts of interest. If the court validates AQR’s appraisal claim, the fund could potentially receive the difference between the agreed-upon price and the fair market value, along with interest.

This strategy has gained traction due to recent changes in Delaware corporate law. AQR has previously challenged the valuations in four acquisitions, including Silver Lake’s $25 billion purchase of Endeavor Group Holdings and 3G Capital’s $9.4 billion acquisition of Skechers USA. Clearwater, however, maintains that the transaction was approved by independent directors and a majority of shareholders without conflicts, and that the $24.55 per-share consideration represented a 47% premium to Clearwater’s pre-deal share price.