Opinion ID: 1933235
Heading Depth: 1
Heading Rank: 6

Heading: Nature of Enterprise

Text: The dissenter in an appraisal action is entitled to receive a proportionate share of fair value in the going concern on the date of the merger, rather than value that is determined on a liquidated basis. [23] Therefore, the corporation must first be valued as an operating entity. [24] Consequently, one of the most important factors to consider is the nature of the enterprise that is the subject of the appraisal proceeding. [25] According to Alcoma, Okeechobee was a closed-end investment company. We have assumed the bona fides of that contention for the purposes of this appeal. In Tri-Continental, one of Delaware's seminal appraisal cases, this Court considered the valuation of a regulated closed-end investment company with leverage that was engaged in the business of investing in a cross-section of the stock market. [26] Tri-Continental was decided at a time when the Delaware Block Method was the exclusive basis for calculating the value of a corporation in an appraisal proceeding. The Delaware Block Method actually is a combination of three generally accepted methods for valuation: the asset approach, the market approach, and the earnings approach. [27] Under the Delaware Block Method, the asset, market and earnings approach are each used separately to calculate a value for the entire corporation. A percentage weight is then assigned those three valuations on the basis of each approach's significance to the nature of the subject corporation's business. [28] The appraised value of the corporation is then determined by the weighted average of the three valuations. [29] In Tri-Continental, this Court held that in determining what figure represents this true or intrinsic value of the corporation being appraised, the Court of Chancery: must take into consideration all factors and elements which reasonably might enter into the fixing of value. Thus, market value, asset value, dividends, earning prospects, the nature of the enterprise, and any other facts which were known or which could be ascertained as of the date of merger and which throw any light on future prospects of the merged corporation are not only pertinent to an inquiry as to the value of the dissenting stockholders' interest, but must be considered by the agency fixing the value. [30] That holding has become one of the bedrock principles of Delaware's appraisal jurisprudence over the last fifty years. In Tri-Continental, the factors and elements taken into consideration by the statutory appraiser [31] were: the nature of the enterprise, i.e., a regulated closed-end investment company; leverage; discount; net asset value; market value; management; earnings and dividends; expenses of operation; particular holdings in the [corporation's] portfolio; and a favorable tax situation. [32] The appraiser found that under the circumstances presented, the factors of management, earnings and dividends, expenses of operation, and the portfolio of the corporation did not merit being debited or credited in arriving at a value for the common stock. [33] The appraiser also found there was no actual market for the corporation's stock at the time of the merger. [34] Consequently, in Tri-Continental, the appraiser focused on the corporation's assets. This Court used three terms to describe that focus: net asset value, full asset value, and fair asset value. [35] We held that the net asset value could not be the sole measure of the corporation's common stocks value. [36] We also recognized that the full value of the corporation's assets is not the same as the value of those assets to the common shareholder because discount is an element of value which must be given independent effect in the valuing of the common stock of regulated closed-end investment companies. [37] Therefore, given our recognition of the net asset value and the full asset value as polar extremes, this Court approved the appraiser's construction of a fair asset value at an intermediate level that included several elements of value over and above the net asset value. This Court then upheld the appraiser's use of Delaware Block Method to value the common stock by applying a discount to that fair asset value.