Opinion ID: 1933235
Heading Depth: 1
Heading Rank: 7

Heading: Methodology Based Corporate Level Discount

Text: The combined argot of law and economics requires periodic explication. Tri-Continental has been construed by this Court as standing for the proposition that an appraisal valuation must take into consideration the unique nature of the enterprise. [38] In Tri-Continental, this Court held that the Court of Chancery had the authority to discount asset values at the corporate level, in appropriate circumstances, as a means of establishing the fair value of the entire corporation as a going concern. [39] Read in the proper context, Tri-Continental was an acknowledgment that the Court of Chancery was vested with the authority to make a discount of the subject corporation's fair asset value at the corporate level because it constituted a proper application of an accepted methodology for arriving at the proper valuation of the unique corporate enterprise, i.e., in Tri-Continental, the Delaware Block Method was applied to value a regulated closed-end investment company with leverage that was engaged in investing in a cross-section of the stock market. Similarly, this Court recently upheld the Court of Chancery's conclusion that a corporate level comparative acquisition approach to valuing a company, which included a control premium for a majority interest in a subsidiary, was a relevant and reliable methodology to use in an appraisal proceeding to determine the fair market value of shares in a holding company. [40] Once the entire corporation has been fairly valued as an operating entity, however, the Delaware appraisal process requires the Court of Chancery to determine the fair value that has been taken from the dissenting shareholder who was forced out of the corporate enterprise, i.e., a proportionate interest in the entire going concern. [41] In Weinberger, this Court broadened the process for determining the fair value of the company's outstanding shares by including all generally accepted techniques of valuation used in the financial community. [42] As a result of that holding in Weinberger, the standard Delaware block or weighted average method of valuation, formerly employed in appraisal valuation cases, no longer exclusively controls such proceedings. [43] The ratio decidendi in Weinberger was based upon the evaluation of the Delaware appraisal statute and this Court's prior holding in Tri-Continental Corporation. [44] Last year, this Court adopted the holdings of Daubert [45] and Carmichael [46] as the correct interpretation of Delaware Rule of Evidence 702 generally and for the admission of expert testimony in the specific context of determining the acceptability of a valuation theory or technique in an appraisal proceeding. [47] In Bancorporation, however, we once again held that, after the entire corporation has been valued as a going concern by applying an appraisal methodology that passes judicial muster, there can be no discounting at the shareholder level. [48] We emphasize the last point because this matter will be remanded for another determination of fair value. In arguing that its liquidated valuation was fair, Alcoma noted that it did not seek a reduction for the discount normally applied to unmarketable shares not registered with the Securities and Exchange Commission or traded on any public market. [49] Such a discount would have constituted an improper discount at the shareholder level. [50] Upon remand, the Court of Chancery must ascertain the exact nature of Okeechobee as an enterprise. [51] It must then determine Okeechobee's fair value as a going concern on the date of the merger by any admissible valuation technique [52] that is based on reliable and relevant record evidence. [53] Paskill is then entitled to receive the fair value of its proportionate interest in that operating entity at the time of the merger without any discount at the shareholder level.