Articles, Delaware Appraisal Cases, Litigation

A Review of Valuations in Delaware Appraisal Cases, 2004–2005

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by Gilbert E. Matthews, CFA

Abstract The Delaware Court of Chancery decided an unusually high number of appraisal cases during 2004 and 2005. In an appraisal, the Court looks at a company as it exists at the date of the transaction— the ‘‘operative reality.’’ Actions planned by a third party acquiror before a change of control are normally excluded in a Delaware appraisal, but should be taken into account in second-stage mergers. The Court used discounted cash flow as its primary valuation methodology. This may reflect the fact that cases involving profitable companies with good comparable companies are easier to settle. In applying the comparable company method, the Chancery Court has been applying control premiums, even in a case in which no testimony supported a control premium. The appraisal valuations in 2004–5 did not display a tendency in favor of either petitioner or respondent.

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