In a prior post, we discussed valuation methodologies utilized by the Delaware Court of Chancery. The Court of Chancery generally utilizes a discounted cash flow methodology in appraisal proceedings.
However, Delaware courts have incorporated other elements of future value in their valuation processes, so long as these elements were not “speculative.” For example, the court in Cede & Co. v. Technicolor, Inc., 684 A.2d 289 (Del. 1996) held that the breakup plan of Technicolor could be used to calculate the value of Technicolor stock. Ultimately, including this future potential value of the breakup plan led to shares being valued at approximately 24% greater than the tender offer price.
Further, in ONTI, Inc. v. Integra Bank, 751 A.2d 904 (Del. Ch. 1999), minority stockholders of OTI, Inc. objected to their cash-out value in a short-form merger of approximately $6 million. They argued that subsequent mergers of the acquiring company should be computed in the price, which would lead to a higher valuation of their shares. The Court agreed, citing Cede, and valued their shares at $16 million.
These decisions are important for any stockholder who has received what they believe to be a low valuation for their shares in the context of a merger.