Opinion ID: 1933235
Heading Depth: 1
Heading Rank: 5

Heading: Liquidation Value Prohibited

Text: In Tri-Continental, the phrase net asset value was defined as simply a mathematical figure representing the total value of the assets of [the corporation] less the prior claims. [14] Accordingly, in Tri-Continental, this Court characterized net asset value as the theoretical liquidating value to which the share would be entitled upon the company going out of business. [15] In footnote 2, we acknowledged that theoretical liquidating net asset value could never be obtained in an actual liquidation because of the attendant expenses, e.g., sales costs and taxes. [16] The seminal importance of Tri-Continental is readily apparent fifty years later when the principles it established are applied to the appraisal case sub judice. First, the value of dissenting stock is to be fixed on a going concern basis. [17] Second, the basic concept of value under the appraisal statute is that the stockholder is entitled to be paid for what has been taken from him, viz, his proportionate interest in a going concern. [18] Third, net asset value is a theoretical liquidating value to which the share would be entitled upon the company going out of business. [19] Fourth, because the value of dissenting stock is to be fixed on a going concern basis, the taking of the net asset value as the appraisal value of the stock is obviously precluded by the [going-concern] rule. [20] Fifth, since net asset value is, in reality, a liquidating value, it cannot be made the sole criterion of the measure of the value of the dissenting stock. [21] The Court of Chancery erred, as a matter of law, by relying upon the net asset value as the sole criterion for determining the fair value of Okeechobee's stock. It compounded that error when it deducted the speculative future tax liabilities from its net asset value calculation. That deduction was inconsistent with the theoretical nature of the liquidating value that this Court ascribed to the term net asset value in Tri-Continental and converted Okeechobee's theoretical net asset value into an actual liquidation value. Since it is impermissible to appraise a corporation on the sole basis of its theoretical liquidation net asset value, a fortiori, a statutory appraisal can never be made solely on the basis of an actual liquidation net asset value. [22]