Court Opinion

ID: 8406988
Source: CourtListenerOpinion
Date Created: 2022-10-31 22:01:48.40991+00
Date Added: 2024-06-11T16:47:22.943749
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

RAMCELL, INC.,                               )
                                             )
                 Petitioner,                 )
                                             )
     v.                                      ) C.A. No. 2019-0601-PAF
                                             )
ALLTEL CORPORATION d/b/a VERIZON             )
WIRELESS,                                    )
                                             )
                Respondent.                  )

                        MEMORANDUM OPINION

                        Date Submitted: July 1, 2022
                       Date Decided: October 31, 2022

Carmella P. Keener, COOCH AND TAYLOR, P.A., Wilmington, Delaware;
Michael A. Pullara, Houston, Texas; Ryan van Steenis, AJAMIE LLP, Houston,
Texas; Attorneys for Petitioner Ramcell, Inc.

Richard L. Renck, Mackenzie M. Wrobel, Tracey E. Timlin, DUANE MORRIS
LLP, Wilmington, Delaware; Attorneys for Respondent Alltel Corporation d/b/a
Verizon Wireless.

FIORAVANTI, Vice Chancellor
      This is an appraisal action to determine the fair value of petitioner’s shares of

Jackson Cellular Telephone Co., Inc. (“Jackson”) as of April 4, 2019. On that date,

Alltel Corporation (“Alltel” and d/b/a Verizon Wireless), which owned more than

90% of Jackson’s outstanding common stock, effected a short-form merger under 8

Del. C. § 253. In the merger, petitioner’s stock in Jackson was canceled, and each

share of common stock was converted into the right to receive the merger

consideration of $2,963.

      Petitioner Ramcell, Inc. (“Ramcell”) exercised its appraisal rights under 8 Del.

C. § 262, seeking a statutory appraisal for its approximately 155 shares of Jackson

common stock that were cashed out in the merger. Ramcell and Alltel have

presented vastly different valuations of Jackson. Respondent’s expert opines that

Jackson’s per-share value was $5,690.92 at the time of the merger. Petitioner’s

expert has offered two appraisal ranges, opining that, at the high end, Jackson’s per-

share value was $36,016 on the merger date.

      Both sides agree that Jackson should be valued exclusively using a discounted

cash flow (“DCF”) approach, but the disparity in the experts’ valuations are

attributed to their sharp disagreements over the inputs to the DCF model and how

they should be calculated. In the end, this court determines that Jackson’s per share

fair value was $11,464.57 as of the valuation date. This number reflects the court’s

determination of Jackson’s fair value taking into consideration all relevant factors.
I.        BACKGROUND

          The following recitation reflects the facts as the court finds them after trial.1

      A. Parties, the Merger, and Procedural History

          Respondent Alltel is a Delaware corporation and indirect wholly owned

subsidiary of Verizon Communications, Inc. (“Verizon”).2 On April 9, 2019, Alltel

owned more than 90% of the outstanding common stock of Jackson, a Delaware

corporation.

          On April 4, 2019, Alltel’s Board of Directors adopted resolutions approving

a merger of Jackson into Alltel.3 On April 9, 2019, Jackson merged with and into

Alltel, with Alltel surviving the merger.4 Alltel completed the merger pursuant to

Section 253 of the Delaware General Corporation Law (“DGCL”). Immediately

prior to the merger, Jackson canceled and extinguished its outstanding shares of

common stock, converting each share of common stock into the right to receive the

merger consideration of $2,963 in cash, without interest and subject to any

1
 Documents filed on the docket for this case are cited as “Dkt.” followed by their docket
number. The trial testimony (Dkt. 124–25) is cited as “Tr.”; deposition testimony is cited
as “[name] Dep.”; trial exhibits are cited as “JX”; and stipulated facts in the pre-trial order
(Dkt. 118) are cited as “PTO,” with each followed by the relevant page, paragraph, or
exhibit number.
2
    PTO 2.
3
    Id.
4
    Id.

                                               2
applicable taxes.5 Ramcell did not consent to the merger, and on May 6, 2019,

Ramcell made a written demand to Alltel for an appraisal of its 155.4309 shares of

Jackson common stock pursuant to 8 Del. C. § 262.6 On August 5, 2019, Ramcell

filed a verified petition for appraisal.

          The court conducted a two-day trial on March 2 and 3, 2022. The parties

submitted approximately 260 joint exhibits and five deposition transcripts. There

were four trial witnesses, including valuation experts for each side.7 The Petitioner

presented J. Armand Musey, CFA, JD/MBA (“Musey”), the President of Summit

Ridge Group, LLC, as its valuation expert.8 Respondent’s valuation expert was

Joseph W. Thompson, CFA, ASA (“Thompson”), a principal at the Griffing Group.9

5
    PTO 3.
6
    Id.
7
 The other two trial witnesses were Philip Junker, Verizon’s executive director of business
development, and Courtney Macuszonok Verizon Communications’ manager of FP&A
and commercial finance for Verizon’s consumer group.
8
  JX 228, at 67. The Summit Ridge Group, LLC provides business valuation and financial
consulting services in the telecommunications, media, and satellite industries. Musey is a
specialist in the telecommunications industry with extensive experience in the area. Musey
holds a B.A. from the University of Chicago. He additionally holds an M.B.A. and a J.D.
from Northwestern, as well as an M.A. from Columbia University. JX 228, at 8–9.
9
  JX 227, at 36. The Griffing Group, LLC is a consulting firm that provides business
valuation, transaction advisory, and litigation support services. Thompson has twenty
years of professional experience in finance and specializes in, among other things, valuing
businesses. Thompson received his B.S. from DePaul University with majors in Finance
and Economics. He went on to earn his master’s in business administration and a master’s
in science and information systems from Boston University. JX 227, at 4.

                                            3
      B. Jackson History

           In the 1980s, the Federal Communications Commission (“FCC”) used

lotteries to award the rights to construct cellular telephone networks in particular

Metropolitan Statistical Areas (“MSA”).10           The Jackson, Mississippi MSA

(“Jackson MSA”) was one such market.11

           A group of investors, including Ramcell, formed Jackson as a partnership to

increase their collective chances of winning the cellular network construction rights

for Jackson, Mississippi.12 The partnership operated such that if one of the partners

won the lottery, the winning partner would contribute its cellular network

construction rights to the partnership in exchange for a 50.01% interest in the

partnership.13 The remaining 49.99% partnership interest would be allocated among

the other partners with no minority partner allowed to have more than a 0.99%

interest in the partnership.14

10
   Ramsey Dep. 18:12–19:8; 16:10–23; In re Cellular Tel. P’ship Litig., 2022 WL 698112,
at *3 (Del. Ch. Mar. 9, 2022).
11
     Ramsey Dep. 31:16–32:8.
12
     Id. at 23:13–22; 31:8–32:8.
13
     Id. at 23:13–22.
14
     Id.

                                            4
          In 1986, the FCC awarded the cellular network construction rights for Jackson

MSA to a Jackson partner, and Ramcell received a minority interest of 0.99%.15 In

1988, Jackson converted from a partnership to a corporation.16 By 2009, Alltel was

Jackson’s majority owner. That same year, Verizon acquired Alltel and combined

Jackson’s operations with its own.17 As of early 2018, there were five minority

Jackson stockholders, each with less than a 1% interest in Jackson.18 On April 11,

2018, Alltel offered to purchase the shares of the minority stockholders for $2,870 a

share subject to the condition that all the minority stockholders agree to sell—a

condition that was not met.19 Alltel arrived at the offer price by taking its internal

valuation of Jackson, discounting it by 10% to “create value to Verizon,” and then

discounting it by a further 10% to begin negotiations.20 Alltel made a second offer

to acquire the minority shares, raising the price to $2,963 per share without a

condition that all the minority stockholders sell. Two of the five minority

stockholders accepted the offer and sold their shares to Alltel at that price.21 On

15
     Id. at 31:16–32:8; Resp. Pre-Tr. Br. 5.
16
     JX 1.
17
     JX 73, at 3.
18
     JX 7, at 2.
19
     JX 115.
20
     Tr.I, at 123:16–21 (Junker).
21
     JX 154, at 0000013.

                                               5
April 4, 2019, Alltel exercised its right under Section 253 to effect a short-form

merger with Alltel, converting each of Jackson’s remaining shares into the right to

receive $2,963.22 On that same day, Jackson merged with and into Alltel with Alltel

surviving the merger.23

      C. Jackson’s Business

           Jackson was in the business of providing wireless communication products

and services in the Jackson MSA, which comprises Hinds, Rankin, and Madison

Counties in Mississippi.24 Jackson operated three retail stores, and another four

retail stores were operated by an authorized retailor.25 Jackson also had a network

office and twenty-six employees as of December 31, 2018.26 Verizon operated and

branded Jackson’s operations.27       Jackson derived revenue from four primary

streams: (1) service revenues; (2) visitor roaming; (3) equipment revenue; and (4)

other revenue.

22
     Id. at 0000021.
23
     Tr.I 109:8–18 (Junker).
24
     JX 154, at 0000013.
25
     Id.
26
     Id.
27
     Tr.I 285:6–19 (Macuszonok).

                                           6
           Service revenues are revenues generated from customers’ use of the cellular

network.28 In other words, service revenues are the portion of a customer’s phone

bill attributable to service access to Jackson’s network.29 Jackson received both

direct and allocated service revenues.30 Jackson derived direct service revenues that

were attributable to Verizon Wireless customers with a phone number

geographically tied to the Jackson MSA.31 Phone numbers are geographically tied

through their area code and next three digits of the phone number, known in the

industry as NPA/NXX.32 Allocated service revenues are Jackson’s share of service

revenue that derive from customers with non-geographic NPA/NXXs.33 Jackson’s

share is calculated by dividing Jackson’s customers by Verizon Wireless’s total

customers. An example of non-geographic NPA/NXXs are OnStar accounts which

are located in cars.34

           Visitor roaming revenue is revenue that Jackson earns from Verizon users

whose NPA/NXX is attributable to a geographic area other than the Jackson MSA

28
     Id. at 230:16–23 (Macuszonok).
29
     Id.
30
     Id. at 230:16–231:7 (Macuszonok).
31
     Id. at 231:2–232:3 (Macuszonok).
32
     Id.
33
     Id.
34
     Id.

                                            7
when they are using their device in the Jackson MSA.35 For example, any voice or

data usage by a customer whose NPA/NXX is mapped to New York City while in

Jackson would generate roaming revenue attributable to Jackson.

         Equipment revenue is revenue generated from the sale of devices such as

cellphones, machine-to-machine devices, watches, tablets, and accessories. Jackson

would book equipment revenue based on the shipping address for any online orders

or based on the location of the retail store in which the sale occurred.36 Jackson also

received allocated equipment revenue in certain circumstances where an equipment-

based promotion, such as a buy-one-get-one-free promotion, would not provide

economic benefits to a legal entity. Such promotions are often loss leaders to drive

subscriber growth. In situations where the equipment promotion is given by one

legal entity, but the subscriber receives an NPA/NXX that allocates their subscriber

revenue to another legal entity, the promotion is allocated across legal entities to

make sure that the promotion is equitable to all of Verizon’s legal entities.37

         “Other revenue” comprises revenue generated that is not necessarily

connected to the Verizon network.38 For example, handset insurance and IT support

35
     Id. at 237:10–13 (Macuszonok).
36
     Tr.I 24:15–21 (Musey).
37
     Id. at 242:7–23 (Macuszonok).
38
     Id. at 244:6–9 (Macuszonok).

                                          8
service revenue are categorized as other revenue.39 Jackson also generates non-

operating income, or losses depending on the year, from investments.40

           Jackson’s operating expenses fall into six categories: (1) cost of service; (2)

cost of roaming; (3) cost of equipment; (4) depreciation and amortization; (5)

commissions; and (6) selling, general, and administration.41

           Cost of service expenses are those incurred to run the network. The expenses

are Jackson-specific costs of service and allocated costs of service.42 Jackson-

specific cost of service includes the cost of fiber to connect two cell sites that are

both located within Jackson.43 An example of allocated costs of service is the cost

of fiber that connects a cell site in Jackson to a site owned by another legal entity.44

           Cost of roaming is the cost created when a Jackson NPA/NXX designated

customer uses their device in an area serviced by another legal entity.45 For example,

39
     Id. at 244:6–14 (Macuszonok).
40
     Id. at 244:18–20 (Macuszonok).
41
     JX 190.
42
     Tr.I 236:16–24 (Macuszonok).
43
     Id.
44
     Id. at 237:2–6 (Macuszonok).
45
     Id. at 238:4–9 (Macuszonok).

                                              9
a Jackson customer who uses their phone in Los Angeles would create roaming

expenses for the use of their device attributable to Jackson.46

           Cost of equipment expenses are the costs of sold inventory.47 For example,

when Jackson sells an iPhone that it purchased from Apple, Jackson incurs cost of

equipment expense.48 For the expense to be allocated to Jackson, the sale must occur

in a Jackson retail store or go to a shipping address located in the Jackson MSA.49

           Depreciation and amortization expenses comprise the expense related to the

assets that Jackson holds.50 For example, a cell site typically has a useful life of

seven years. The expense required to purchase or construct a cell site is capitalized

up front and then depreciated over those seven years.

           Commissions are expenses related to the sale of devices from retail store

employees or indirect agents.51

           Selling, general, and administrative expenses is a catch-all expense category

that, in large part, consists of allocated costs from Verizon.52 For example, the

46
     Id.
47
     Id. at 243:18–21 (Macuszonok).
48
     Id. at 244:1–2 (Macuszonok).
49
     Id.
50
     Id. at 245:1–6 (Macuszonok).
51
     Id. at 245:8–10 (Macuszonok).
52
     Id. at 245:11–21 (Macuszonok).

                                             10
salaries of Verizon’s in-house accountants are included in this catch-all category on

an allocated basis.53

      D. Jackson’s Financing
           When Jackson was organized as a partnership, Jackson financed its capital

expenditures through capital calls.54 After Jackson became a corporation, Jackson’s

majority owner financed capital expenditures through intracompany debt recorded

as a Due to Affiliate (“DTA”) balance.55 The DTA balance effectively operated as

a cash account that recorded inflows and outflows.56 A positive net income would

reduce the DTA balance, while things like capital expenditures would increase the

balance.57 Until the DTA balance was extinguished, it was “not mathematically

possible to pay dividends” to Jackson’s equity holders.58

           Data on the DTA is not available for periods predating 2005, and existing

records do not explain the origin of the DTA balance.59 The DTA balance centered

on a mean of $44.6 million from 2005 to 2010 with variations of up to $4 million

53
     Id.
54
     Ramsey Dep. 34:17–21; 37:5–7.
55
     Junker Dep. 89:6–87:12.
56
     Tr.I 247:1–5 (Macuszonok).
57
     Id.
58
     Tr.I 117:15–19 (Junker).
59
     JX 159A.

                                           11
around that mean throughout the period.60 In 2011, the DTA balance jumped from

$48.6 million to $81.6 million, an increase of $33 million.61 A portion of this

increase, $18.4 million, can be attributed to a sale of assets from Verizon to Jackson

as a part of Jackson’s 4G network development and consolidation of overlapping

assets in the Jackson area.62 The parties and their experts did not explain the

remaining $14.6 million dollar jump at trial, in their expert reports, or in any of the

briefing.       Starting in 2013, earnings before interest, taxes, depreciation, and

amortization (“EBITDA”) began to decrease the DTA balance. By 2018, positive

EBITDA results had decreased the DTA amount to $12.8 million.63

           Verizon apparently charged Jackson an interest rate for its DTA funds, but the

rate was not established by the parties at trial.64 Respondent’s expert, Thompson,

asserts that the DTA balance accrued interest at the applicable federal funds rate.65

Petitioner’s expert, Musey, states that his analysis suggests that Verizon was

charging Jackson an interest rate of 5.3%.

60
     Id.
61
     Id.
62
     Tr.I 249:12–250:22 (Macuszonok).
63
     JX 159A.
64
     Tr.I 134:11–15 (Junker).
65
     JX 227, at 36.

                                             12
      E. EDGE Receivables

           Important to this appraisal proceeding is Jackson’s practice of selling phones,

financing them, and securitizing the receivables. In the past, Verizon would give

customers their phones for free.66 Around the valuation date, Verizon had begun to

sell customers their phones and finance them so that they would pay off the cost of

the phone over the course of two years.67 Thompson states that these receivables are

securitized through a third-party financier and are therefore a cash-neutral event

outside of their associated financing expense.68

      F. United States, Jackson MSA, and Wireless Industry Market Outlook
           Despite the same available information, Thompson and Musey came to

different conclusions regarding the overall United States’ economic outlook, the

Jackson MSA’s market outlook, and the wireless industry’s market outlook.

Thompson, relying on the Congressional Budget Office’s economic forecasts

published in January 2019, painted a picture of the overall United States economy

generally headed for a slight slowdown in the wake of Trump-era economic and tax

policies which created short-term, outsized economic growth.69               Thompson’s

66
     Tr.II 341:16–18 (Thompson).
67
     Id.
68
     JX 227, at 33.
69
     Id. at 19.

                                             13
proffered forecast predicted that real GDP was to grow by 2.3% in 2019 and an

average of 1.7% per year from 2020 through 2023.70 Musey relied on the outsized

GDP growth in 2018, Trump administration tax policies, low cost of debt, favorable

regulatory environment, and positive statements about the United States economy

from Verizon executives to paint a favorable picture of the macro environment

poised for continued growth.71

           Thompson presented a somewhat gloomy view of Jackson MSA’s economic

outlook considering, population and income trends. Looking at U.S. Census Annual

Population Estimates, Thompson found that the Jackson MSA experienced flat to

modest population growth from 2013 to 2018.72 Thompson further found that Hinds

County, Jackson MSA’s largest county, saw a decrease in population of 3.4%

between 2010 and 2018.73

           Musey rebuts Thompson’s view as overly pessimistic. Musey found that the

population growth of the Jackson MSA was -0.19%, +0.03%, and 0.14% for the one-

year, three-year, and five-year trailing periods ended December 31, 2018.74 This

70
     Id.
71
     JX 228, at 22–23.
72
     JX 227, at 20.
73
     Id. at 21.
74
     JX 228, at 24.

                                          14
population growth is slower than the national average population growth for these

periods of 0.80%, 0.71%, and 0.74%.75 Musey, however, points to older U.S. Census

data to show that the population of Jackson MSA increased by 9.4% between 2000

and 2010.76 Musey claims that the older data is more reliable and is a better indicator

of demographic trends, despite being almost a decade out of date.77 Income data for

the Jackson MSA presented by Thompson shows that Madison and Rankin County

have a higher median household income than the United States average, while Hinds

County substantially trails the United States average.78

           Thompson and Musey also disagree about the wireless industry’s economic

outlook. Thompson states that the wireless market is highly competitive and that

companies have limited options to differentiate their products, which has led to

decreasing revenues in the industry overall.79 Additionally, Thompson states that

industry forecasts expect the average revenue per user (“ARPU”) to continue to

decline, which will stifle revenue growth opportunities.80 Musey agrees that industry

75
     Id.
76
     JX 229, at 47.
77
     Id.
78
     JX 227, at 22.
79
     Id. at 24.
80
  Tr.I 19:20–24 (Musey). The ARPU is calculated by dividing total revenue by the average
number of subscribers during a period.

                                          15
revenues and ARPU decreased between 2013 and 2018.81 Declining ARPU is in

part driven by an increase in non-traditional subscribers (i.e., non-cellphone

subscribers), which increase the subscriber count without a commensurate increase

in revenue.82 Musey, however, expects future revenue growth in the industry of

3.1% because of the revenue opportunities attendant to the 5G rollout.83

           5G is the fifth generation of the wireless mobile network. Since the 1980s,

“[t]telecommunication providers and technology companies around the world have

been working together to research and develop new technology solutions to meet

growing demands for mobile data from consumers and industrial users.”84 The 5G

network is the latest iteration of this effort. The 5G rollout has the potential to create

new revenue opportunities for wireless firms because of the various new applications

and services it enables.85

           5G has very low latencies, which allows users to create of Internet of Things

(“IoT”) applications.86 Latency is the time it takes a piece of data to go from its

81
     JX 228, at 27.
82
     Tr.II, at 444:4–7 (Thompson).
83
     Id. at 28.
84
   JILL C. GALLAGHER & MICHAEL E. DEVINE, CONG. RSCH. SRV., R45485, FIFTH-
GENERATION (5G) TELECOMMUNICATIONS TECHNOLOGIES: ISSUES FOR CONGRESS 1 (Jan.
30, 3019).
85
     Tr.I, at 20:30–21:20 (Musey).
86
     Id.

                                             16
origin to its destination.87 The IoT is a “network of physical objects—‘things’—that

are embedded with sensors, software, and other technologies for the purpose of

connecting and exchanging data with other devices and systems over the internet.”88

As more IoT systems come online because of the 5G rollout, the more revenue

opportunities there are for firms like Verizon which provide 5G wireless services.

           5G also allows for an enormous amount of bandwidth.89 Bandwidth is a

network’s capacity to handle data. The greater a network’s bandwidth, the more

data can be accessed over that network at any given time.90 With 5G and the colossal

amount of bandwidth it provides, the wireless industry is poised to move into the

fixed internet business.91 This means that companies like Verizon could compete

with companies that provide internet through cable modems. This opens an avenue

of growth for the wireless industry because the wireless industry is now able to

effectively provide internet to consumers.92

87
     Id.
88
 What is IoT, ORACLE, https://www.oracle.com/internet-of-things/what-is-iot (last visited
Oct. 20, 2022).
89
     Tr.I, at 20:30–21:20 (Musey).
90
     GALLAGHER & DEVINE, supra note 84, at 5.
91
     Id.
92
     Id.

                                           17
           At trial, however, Musey stated that during the 4G cycle, industry revenues

did not peak as anticipated.93 Thus, it is possible that the 5G network will not provide

all the revenue benefits it promises.

      G. Competitive Environment – C-Spire
           The nature of Jackson’s competitive environment is another area in which

Thompson’s and Musey’s opinions diverge. Thompson states that Jackson’s future

growth is hampered by the presence of a regional competitor, C-Spire.94 Musey uses

the Herfindahl-Hirschman Index (“HHI”) to discount any effect C-Spire may have

had on the competitive environment and to claim that the Jackson MSA is not

significantly different from the national market.95 The HHI is used to measure

market concentration in competition analyses and is calculated by summing the

squared market shares of all firms in any given market.96 In 2013, the HHI for the

Jackson MSA market was 3,016, slightly lower than the national average HHI for

the wireless industry of 3,027 during the same time period.97 Musey states that this

is an indication of an average level of competition compared to the U.S. as a whole.98

93
     Tr.I 86:17–24 (Musey).
94
     JX 227 at 25.
95
     JX 228, at 25–26.
96
     Id.
97
     Id.
98
     Id.

                                            18
At trial, Musey further stated that Jackson’s HHI index indicates that C-Spire was

not significantly reducing the market share of Jackson’s other four major

competitors because if it was, the HHI index for the region would be lower than the

national average.99 Thompson contested the use of the HHI index to prove that C-

Spire was not a significant competitor.100 Thompson supported his position that C-

Spire was in fact a major competitor in the region with anecdotal evidence, including

that C-Spire has over a million subscribers, that 94% of C-Spires’s stores are located

in Mississippi, that C-Spire employed 1,500 people, and that readers of the

Mississippi Business Journal voted C-Spire’s mobile communications unit the best

in Mississippi noting C-Spire’s impact in moving Mississippi forward.101

99
     Tr.I 16:9–15 (Musey).
100
    The HHI is calculated by taking the sum of the squares of the market participants.
HHI=S1^2+S2^2 . . . . Sn^2. If in one market there are two participants (e.g., Verizon and
AT&T) and they control the market 60/40, the HHI would be 5200. If in another market
there were two competitors (e.g., Verizon and C-Spire), and they control the market 60/40,
the HHI would be 5200. Thus, the HHI in aggregate only informs the relative
concentration, not which firms are creating the concentration. As a result, in the Jackson
market, it is possible that C-Spire is a significant competitor and that one of the other
competitors in the market is not active or is not taking up a significant amount of market
share.
101
      JX 230, at 8–11; Tr:II, 370:17–371:20 (Thompson).

                                            19
      H. Keeping Track of Subscribers: NPA-NXX & Principal Place of Use

                   1.   NPA-NXX
            As previewed above and as discussed thoroughly in the court’s recent In re

Cellular Telephone Partnership Litigation (“In re Cellular”) decision,102 keeping

track of the number of subscribers attributable to a regional wireless provider is

difficult due to the NPA-NXX system and a lack of viable alternatives. As Vice

Chancellor Laster outlined in In re Cellular, “From the early days of the cellular

industry until the mid-2000s, wireless carriers pursued a relatively stable business

model that depended on ‘postpaid’ wireless voice plans. Postpaid subscribers

entered into long-term contracts (typically one or two years) and paid fees based on

their monthly usage.”103 The court further describes the way in which subscribers

were tracked:

            Wireless carriers tracked subscribers and their usage using a system
            known as “NPA-NXX,” a shorthand term for the area code and next
            three digits of the subscriber's phone number. For example, in the
            phone number (999)-555-1234, the NPA-NXX is 999-555. The last
            four digits produce a block of 10,000 phone numbers, ranging from
            0000 to 9999, associated with that particular NPA-NXX.104

102
      2022 WL 698112, at *3–5 (Del. Ch. Mar. 9, 2022).
103
      Id. at *4.
104
      Id.

                                            20
            The FCC assigned NPA-NXX to geographic regions throughout

Verizon’s United States territories.105 Jackson has a specific set of NPA-NXX

numbers that are assigned to it, and any customers whose NPA-NXX were

assigned to the Jackson area were identified as Jackson subscribers for the

purposes of allocating revenue.106

            Verizon employees typically gave customers NPA-NXXs based on

where the person lived or used their phone the most.107 Verizon employees,

however, had a fair bit of discretion in assigning NPA-NXXs, so there is a

possibility for error in that customers could be assigned to the incorrect NPA-

NXX.108

            The NPA-NXX system does not properly allocate service revenues if a

customer moves and does not change their phone number, because wireless

companies have “no mechanism for assigning the existing NPA-NXX number

to the new market.”109 The revenues associated with a customer who moved

105
      Tr.I 216:20–24 (Macuszonok).
106
      Id. at 216:12–217:8 (Macuszonok).
107
      Tr.I 23:1–26:8 (Musey).
108
      Id.
109
      In re Cellular, 2022 WL 698112, at *4.

                                               21
but did not change their number “continued to be attributed to the original

market.”110 As described in In re Cellular:

            Until the mid-aughts, [this] major defect was not a significant problem
            . . . . During that era, if a subscriber used her cellular phone outside of
            her local market, then the carrier charged the subscriber for “roaming.”
            Due to the high cost of roaming, a customer who relocated outside of
            her home area had a strong financial incentive to obtain a new NPA-
            NXX number. Moreover, until the advent of number portability in
            2004, any subscriber who changed carriers was treated as a new
            subscriber and received a new NPA-NXX number. A customer’s NPA-
            NXX number therefore correlated strongly with the customer’s primary
            place of use, and customers holding NPA-NXX numbers associated
            with the Partnership were highly likely to be primarily using the
            Partnership's portion of [the] network.111

            With the advent of number portability and nationwide rate plans in the mid-

aughts, the NPA-NXX became a less reliable means of keeping track of the number

of subscribers attributable to a regional partnership within a larger wireless service

business. Number portability is a feature that permits a customer disconnecting

service from one wireless provider to take that number with them to their next

wireless provider.112 Nationwide rate plans offered customers who formerly paid

roaming charges when traveling between markets the ability to make calls or use

data without incurring roaming charges.113 As a result of the developments in the

110
      Id.
111
      Id.
112
      Tr:I 172:1–4 (Junker).
113
      Tr.I 173:23–3 (Junker).

                                                22
wireless industry, customers no longer had an incentive to change phone numbers

when moving out of one NPA-NXX region and into another.114 As cell users

inevitably moved from one NPA-NXX region to another, the NPA-NXX system

became increasingly unreliable and is no longer likely to be a close proxy for the

number of subscribers in a given NPA-NXX region.115 A wireless service provider

can clean up this data by allocating customers who create a large amount of

internally calculated roaming charges to the NPA-NXX region in which they are

creating the roaming charges.116       Verizon, however, does not appear to have

undertaken this effort.117

                 2.    Principal Place of Use

            A suggested alternative means of calculating the number of Jackson

subscribers is by using the customers’ principal place of use (“PPU”). PPU is

generally defined as where the customer uses the connected devices most often.118

A customer’s billing address is used as a proxy that customer’s PPU.119

114
      Tr.I 26:17–27:2 (Musey).
115
      Id. at 25:2–28:2 (Musey).
116
      Id. at 30:13–24 (Musey).
117
      Id.
118
      Tr.I 182:8–12 (Junker).
119
      Tr.I 28:23–29:1 (Musey).

                                          23
         PPU is not a completely accurate way to measure the number of subscribers

in a given region. Some customers may have their billing address in one region and

use their phone exclusively in another region.120 Further, large swings in PPU can

occur if an enterprise customer changes its billing address. For example, in Jackson,

it appears that a single enterprise customer, Itron, updated its billing address in 2017

causing 200,000 connected devices to be reallocated from Jackson to another legal

entity.121

         Neither Musey nor Thompson used PPU as a basis for their revenue

projections.

                3.      NPA-NXX v. PPU

         The below chart compares the number of Jackson subscriber lines measured

by NPA-NXX with Jackson’s subscriber lines measured by principal place of use:122

              Date                      NPA-NXX                       PPU

             4/1/2012                    21,117                      20,565

             4/1/2013                    35,096                      61,764

             4/1/2014                    57,008                      301,607

             4/1/2015                    72,047                      314,754

120
      Tr.I 29:2–4 (Musey).
121
      Tr.I 219:21–220:1 (Macuszonok).
122
      JX 223 at 22.

                                          24
              4/1/2016                   82,409                      323,003

              4/1/2017                   82,733                      318,879

              4/1/2018                   84,699                      100,048

              4/1/2019                   90,787                      101,529

            The data show that the number of subscribers according to PPU moved

dramatically in 2014 and after 2017. Alltel attributes this to Itron’s change in billing

address.123 Petitioner does not dispute this.

      I. Historical Financials & Management Projections
            Verizon’s partnership accounting group (“PAG”) created annual financial

statements for Jackson in the ordinary course, but did not create projections for

Jackson in the ordinary course.124 The PAG creates these annual financials to reflect

the revenues, expenses, and capital investment that arise from the partnership’s

particular market.125       Jackson’s financial statements were unaudited because

Jackson’s corporate bylaws did not contain a requirement that its financial

statements be audited.126 In preparing to effect the merger, Verizon created a ten-

123
      Tr.I 219:21–220:1 (Macuszonok).
124
      Tr.I 131:8–14 (Junker).
125
      Id.
126
      Macuszonok Dep. 177:3-18.

                                           25
year forecast of Jackson’s financial performance to establish the merger price.127

Verizon created the forecasts knowing that a merger was imminent and that appraisal

litigation was possible, if not likely.128

II.      ANALYSIS
         The purpose of an appraisal proceeding is to give stockholders dissenting from

a merger the opportunity to receive a judicially determined fair value for their shares

of the company.129 In an appraisal proceeding, 8 Del. C. § 262(h), directs the court

to:

         [A]ppraise the shares determining their fair value, exclusive of any
         element of value arising from the accomplishment or expectation of the
         merger or consolidation, together with a fair rate of interest, if any, to
         be paid upon the amount determined to be the fair value. In determining
         such fair value, the Court shall take into account all relevant factors.130

         The fair value that the court is to determine in the appraisal context is largely

a judge-made creation “freighted with policy considerations” and should not be

conflated with the general economic concept of fair value.131 In explaining the

127
      JX-152A, Alltel_00012529-30.
128
      Id. at Alltel_0012523.
129
    Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1186 (Del. 1988) (hereinafter “Cede
I”).
130
      8 Del. C. § 262(h).
131
      Finkelstein v. Liberty Digit., Inc., 2005 WL 1074364, at *11 (Del. Ch. Apr. 25, 2005).

                                              26
contours of fair value more than seventy years ago, the Delaware Supreme Court

observed:

         The basic concept of value under the appraisal statute is that the
         stockholder is entitled to be paid for that which has been taken from
         him, his proportionate interest in a going concern. By value of the
         stockholder’s proportionate interest in the corporate enterprise is
         meant the true or intrinsic value of his stock which has been taken by
         the merger. In determining what figure represents this true or intrinsic
         value, . . . the courts 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 the 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 stockholder’s interest, but
         must be considered . . . .132

         The burden of proof in an appraisal proceeding as to the issue of fair value

differs from a typical civil proceeding. “In a statutory appraisal proceeding, both

sides have the burden of proving their respective valuation positions by a

preponderance of the evidence.”133          In evaluating the parties’ positions, “[n]o

presumption, favorable or unfavorable, attaches to either side’s valuation,”134 and

“[e]ach party also bears the burden of proving the constituent elements of its

valuation position . . . including the propriety of a particular method, modification,

132
      Tri-Cont’l Corp. v. Battye, 74 A.2d 71 (Del. 1950).
133
      M.G. Bancorporation v. Le Beau, 737 A.2d 513, 520 (Del. 1999).
134
      Pinson v. Campbell-Taggart, Inc., 1989 WL 17438, at *6 (Del. Ch. Feb. 28, 1989).

                                              27
discount, or premium.”135 If neither party can meet the preponderance standard on

the “ultimate question of fair value, the court is required to make its own

determination.”136

            In making its determination, the court must value the company as a “going

concern based upon the ‘operative reality’ of the company as of the time of the

merger.”137 The company must be valued as a stand-alone going concern because

the assumption that underlies an appraisal valuation is that the stockholders who

elect appraisal would maintain their investment position in the corporation had the

merger not occurred.138 The valuation date is the date on which the merger closes.139

            Delaware courts and valuation experts recognize that valuation is an art rather

than a science.140 Thus, it is unlikely that the court will be able to uncover the true

fair value of the company at the time of the merger; its form can only be

135
    Jesse A. Finkelstein & John D. Hendershot, Appraisal Rights in Mergers and
Consolidations, Corp. Prac. Portfolio Series, No. 38-5th, at VI.K (2022) [hereinafter
Finkelstein & Hendershot] (describing the burden of proof in a Delaware appraisal
proceeding).
136
      Id.
137
      M.G. Bancorporation, 737 A.2d at 525.
138
      Paskill Corp. v. Alcoma Corp., 747 A.2d 549, 553 (Del. 2000).
139
      Cede I, 542 A.2d at 1186.
140
    See, e.g., In re Shell Oil Co., 607 A.2d 1213, 1221 (Del. 1992) (“Valuation is an art
rather than a science.”); In re Smurfit–Stone Container Corp. S’holder Litig., 2011 WL
2028076, at *24 (Del. Ch. May 20, 2011) (“[U]ltimately, valuation is an art and not a
science.”)

                                              28
approximated through analyzing the shadows cast by the parties’ evidence. Further,

Delaware courts have stated that there is no one fair value and that an impression of

exactitude in appraisal proceedings is unwarranted:

            [I]t is one of the conceits of our law that we purport to declare
            something as elusive as the fair value of an entity on a given date . . . .
            [V]aluation decisions are impossible to make with anything
            approaching complete confidence. Valuing an entity is a difficult
            intellectual exercise, especially when business and financial experts are
            able to organize data in support of wildly divergent valuations for the
            same entity. For a judge who is not an expert in corporate finance, one
            can do little more than try to detect gross distortions in the experts’
            opinions. This effort should, therefore, not be understood, as a matter
            of intellectual honesty, as resulting in the fair value of a corporation on
            a given date. The value of a corporation is not a point on a line, but a
            range of reasonable values, and the judge’s task is to assign one
            particular value within this range as the most reasonable value in light
            of all the relevant evidence and based on considerations of fairness.141

            In determining the range of reasonable values and selecting the appropriate

valuation within that range, the court “has the discretion to select one of the parties’

valuation models as its general framework or to fashion its own.”142 The court may

adopt a party’s model in its entirety.143 The court may also accept a model and then

adjust it by adapting or blending the parties’ factual assumptions.144 If no party

141
   Cede & Co. v. Technicolor, Inc., 2003 WL 23700218, at *2 (Del. Ch. Dec. 31, 2003),
(revised July 9, 2004), aff’d in part, rev’d in part on other grounds, 884 A.2d 26 (Del.
2005) (hereinafter “Cede III”).
142
      M.G. Bancorporation, 737 A.2d at 525.
143
      Id.
144
      Id.

                                                29
establishes a value that is persuasive, “the court must make a determination based

upon its own analysis.”145 Further, a valuation approach that “may have met ‘the

approval of this court on prior occasions . . . may be rejected in a later case if not

presented persuasively or if ‘the relevant professional community has . . . come, by

a healthy weight of reasoned opinion, to believe that a different practice should

become the norm . . . .’”146

         The parties’ experts agree that the best approach to value Jackson is a

discounted cash flow analysis (“DCF”). Thompson and Musey eschewed the

capitalized earnings method, several market approaches, and the asset approach.147

Each of them, for reasons including a lack of comparable companies, determined

that methods other than the DCF method were inappropriate for valuing Jackson.148

Despite selecting the same overarching methodology, the parties’ experts

unsurprisingly came to vastly divergent opinions as to Jackson’s value. Thompson

concluded the fair value for Jackson was $5,690.92 per share.149 Musey conducted

a two-scenario analysis. Scenario One assumed that Jackson’s market penetration

145
      Cooper v. Pabst Brewing Co., 1993 WL 208763, at *8 (Del. Ch. June 8, 1993).
146
  In re Appraisal of Stillwater Mining Co., 2019 WL 3943851, at *20 (Del. Ch. Aug. 21,
2019) (quoting Glob. GT LP v. Golden Telecom, Inc., 993 A.2d 497, 517 (Del. Ch. 2010)).
147
      JX 227, at 39–42; JX 228, at 74–77.
148
      JX 227, at 39–42; JX 228, at 74–77.
149
      Tr.II 358:23 (Thompson).

                                            30
rates would trend towards Verizon Wireless’s national rates and concluded that

Jackson’s per share fair value was between $21,047 and $30,813.150 Scenario Two

assumed that Jackson’s market penetration rates were already at Verizon Wireless’s

national rates and that they would grow in line with Verizon Wireless’s national

forecasts. Scenario Two concluded that Jackson’s per share fair value was between

$28,856 and $36,016.151

      A. The DCF Methodology

            A DCF model analyzes the value of a company as “equal to the present value

of its projected future cash flows.”152 Delaware courts have accepted the DCF

methodology, stating that “[w]hile the particular assumptions underlying its

application may always be challenged in any particular case, the validity of [the

DCF] technique qua valuation methodology is no longer open to question.”153 The

DCF methodology is a generally accepted technique that “gives life to the finance

principle that firms should be valued based on the expected value of their future cash

flows, discounted to present value in a manner that accounts for risk.”154 The DCF

model entails three basic components:

150
      Tr.I 49:23–50:1 (Musey).
151
      Id.
152
      Neal v. Ala. By-Prods. Corp., 1990 WL 109243 at *7 (Del. Ch. Aug. 1, 1990).
153
      Pinson v. Campbell-Taggart, Inc., 1989 WL 17438, at *6 (Del. Ch. Feb. 28, 1989).
154
      Andaloro v. PFPC Worldwide, Inc., 2005 WL 2045640, at *9 (Del. Ch. Aug. 19, 2005).

                                             31
         [A]n estimation of net cash flows that the firm will generate and when,
         over some period; a terminal or residual value equal to the future value,
         as of the end of the projection period, of the firm’s cash flows beyond
         the projection period; and finally[,] a cost of capital with which to
         discount to a present value both the projected net cash flows and the
         estimated terminal or residual value.155

      B. The Estimate of Future Cash Flows

         The foundation of a DCF analysis is an accurate estimate of future operating

cash flows over the projection period. This foundation is the most important input

necessary for performing a proper DCF because “[w]ithout a reliable estimate of

cash flows, a DCF analysis is simply a guess.”156 Stated more colorfully, “[g]arbage

in, garbage out.”157

         Delaware courts prefer DCF models based on projections prepared by

management in the ordinary course of business because an “unbiased management

forecast ordinarily [is] more reliable than estimates later produced by experts who

cannot be expected to be as familiar with the company as the company’s own

management.”158 Projections prepared by management “are not entitled to the same

deference usually        afforded   to    contemporaneously     prepared   management

155
   Cede & Co. v. Technicolor, Inc., 1990 WL 161084, at *7 (Del. Ch. Oct. 19, 1990)
(hereinafter “Cede II”).
156
   Del. Open MRI Radiology Assocs., P.A. v. Kessler, 898 A.2d 290, 312–13 (Del. Ch.
2006).
157
      In re PetSmart, Inc., 2017 WL 2303599, at *22 (Del. Ch. May 26, 2017).
158
      Cede II., 1990 WL 161084, at *15.

                                            32
projections” where “management had never prepared projections beyond the current

fiscal year,” “the possibility of litigation, such as an appraisal proceeding, was

likely,” and the projections “were made outside of the ordinary course of

business.”159      On the other hand, there is no “bright-line test under which

management projections that were created during the merger process are deemed

inherently unreliable.”160       In fact, Delaware courts have relied on projections

prepared by management outside the ordinary course of business and where the

possibility of litigation loomed in the background.161            The court, however, is

inherently doubtful of post-merger, litigation-driven forecasts because “[t]he

possibility of hindsight and other cognitive distortions seems untenably high.”162

159
      Gearreald v. Just Care, Inc., 2012 WL 1569818, at *5 (Del. Ch. Apr. 30, 2012).
160
      Merion Cap., L.P. v. 3M Cogent, Inc., 2013 WL 3793896, at *11 (Del. Ch. July 8, 2013).
161
     See, e.g., Gilbert v. MPM Enters., Inc., 709 A.2d 663, 669–70 (Del. Ch. 1997)
(accepting management’s financial forecasts created in anticipation of the merger with
minor changes because “management was in the best position to forecast [the company’s]
future before the merger” and rejecting petitioner’s implication that the upcoming merger
led management to understate the company’s future financial performance in the absence
of evidence of a deliberate attempt to falsify the company’s projected financial metrics),
aff’d, 731 A.2d 790 (Del. 1999); Gray v. Cytokine Pharmasciences, Inc., 2002 WL 853549,
at *4–5, *8 (Del. Ch. Apr. 25, 2002) (disregarding “litigation-driven projections” prepared
by petitioner’s expert and accepting projections prepared by management while an offer
was pending and the company was exploring merger opportunities).
162
      Agranoff v. Miller, 791 A.2d 880, 892 (Del. Ch. 2001).

                                              33
Moreover, the court “holds a healthy skepticism for post-merger adjustments to

management projections or the creation of new projections entirely.”163

         Here, the financial projections on which Thompson relies were created by

management in anticipation of a merger using historical records kept in the ordinary

course. Management knew that appraisal litigation was possible if not probable.

Musey’s projections were created post merger, for the purposes of this litigation.

                1. Musey’s Approach

         Musey rejected Jackson’s historical financials as being too poor to accurately

forecast future financial results. Instead, he created forecasts for Jackson that

assumed Jackson’s market performance is on par with Verizon Wireless’ overall

national performance.

         Musey opined that Jackson’s historical financials could not be relied on for

several reasons. Among others, certain key metrics such as market penetration

deviated from Verizon Wireless’s national rate without satisfactory explanation, the

historical financials relied on NPA-NXX to calculate service revenue, and there were

unexplained jumps in financial metrics such as revenues and the DTA balance.164

Musey rejected Jackson’s historical financials as a predicter of future growth rates,

163
   Cede & Co. v. JRC Acquisition Corp., 2004 WL 286963, at *2 (Del. Ch. Feb. 10, 2004)
(hereinafter “Cede IV”).
164
      JX 228, at 91–96.

                                           34
in favor of his own financial projections. Musey created two sets of projections,

each of which assumes that Jackson’s performance should be on par with Verizon

Wireless as a whole.165

            The first scenario assumes that Jackson’s reported number of subscribers

based on NPA-NXX is correct, but that those numbers would converge with Verizon

Wireless’s nationwide metrics over the forecasted period until 2028.166 Scenario

One assumes that Jackson’s market penetration rates during the forecast period will

trend from Jackson’s market penetration rate in 2018 to 95% of the forecasted

penetration rate for Verizon in 2027 and 2028.167 Musey then adjusted these

forecasted 2027 and 2028 rates down by 1.7% to account for competition from C-

Spire.168 Scenario One assumes that Jackson’s share of the subscribers in the

Jackson MSA would increase from 14% to approximately 47% over the ten-year

DCF projection period. Musey made several other assumptions for his Scenario

One. Musey assumed that roaming revenue and expense would net to zero and that

Jackson’s operating margin would converge to Verizon Wireless’s operating margin

165
      Id. at 81–87.
166
      Tr. 44:2-16 (Musey).
167
      Id.
168
   Id. Musey calculated the 1.7% number by taking C-Spire’s market share of 5% and
dividing it by three to allocate its impact among C-Spire’s three national wireless
competitors.

                                           35
by 2028. Additionally, Musey normalized forecasted capital expenditures based on

forecasted capital expenditures for Verizon Wireless. Further, Musey normalized

depreciation and amortization based on Verizon’s historical depreciation and

amortization as a percentage of capital expenditures.       Under Scenario One,

Ramcell’s per share value is $21,047 or $21,403, depending on whether the model

assumes outstanding DTA balance of $18,376 or $12,817.

         Musey’s Second Scenario assumes that Jackson already achieved the market

penetration that Verizon had reached nationally and that Jackson would grow in line

with Verizon national’s projections.169    Musey assumed in Scenario Two that

Jackson’s market penetration would trend from 95% of Verizon’s national

penetration rate in 2018 to 95% of Verizon’s national penetration rate in 2027 and

2028. Scenario Two assumes that Jackson’s share of subscribers in the Jackson

MSA jumps from 14% to 47% in year one of the DCF projection period.170 Besides

the market penetration assumptions, Musey made all the same assumptions from

Scenario One in Scenario Two. Under Scenario Two, Jackson’s per share value is

either $26,231 or $26,586, depending on whether the model assumes an outstanding

DTA balance of $18,376 or $12,817.

169
      Tr. 44:17-21 (Musey).
170
      JX 230, at 25.

                                          36
         For both Scenarios One and Two Musey adds the present value of what he

calls Excessive Capital Expenditures and the value of the DTA ending balance on

December 31, 2002.171 Musey finds Jackson’s historical data regarding capital

expenditures to be unreliable and erratic when compared to Verizon Wireless’s

historical capital expenditures. He opines that there was an excess in Jackson’s

capital expenditures, which justifies a $6,732 adjustment in Jackson’s per share

going concern value. Musey also opines that the present value of the DTA ending

balance on December 31, 2002, should be added to the per share going concern value

of the company. This is to make an adjustment for the allegedly incorrect capital

expenditures included in the calculation the DTA. The ending balance of the DTA

on December 31, 2002, was $42,240. Musey calculates the per share present value

of that amount to be $2,698. The present value of the ending balance of the DTA on

December 31, 2002, together with the present value of the “excessive capital

expenditures,” increases Jackson’s per share value under Scenario One to $30,833

and to $36,016 under Scenario Two.       Musey did not persuasively show that

Jackson’s capital expenditures as reported by management were so unreliable and

excessive. Nor did he provide a well-reasoned explanation for why these two

171
      JX 228, at 89 fig.13-1.

                                       37
adjustments must be made or why they are simply tacked onto the final per share

valuation.

            Musey did not convincingly demonstrate that management’s forecasts should

be rejected and that his forecasts, based on Verizon Wireless at a national level, are

more reasonable.

                        a.     Musey does not provide convincing evidence that there
                               is no reasonable explanation for Jackson’s under
                               performance relative to Verizon Wireless or his
                               assertion that Jackson should be performing on par
                               with Verizon Wireless.

            Musey posits there is “no plausible explanation for the massive magnitude of

Jackson’s underperformance relative to Verizon as a whole.”172 Musey states that

he would “expect [Jackson’s] market share, profit margins, and other operating

metrics to be closer to Verizon’s national average for its wireless business” without

support.173 Musey goes on to state, “[t]he reason for Jackson’s underperformance in

terms of market share relative to its parent is not apparent,” while discounting the

presence of competitors like C-Spire.174 Moreover, Musey looks at reported churn

rates for Verizon and for Jackson, finds a difference between the two, states that

there is no explanation for the difference, and assumes that Jackson’s numbers

172
      JX 228, at 13.
173
      Id.
174
      Id. at 47–48.

                                             38
should mirror Verizon’s numbers.175 Musey continues through Jackson’s, financials

finding differences between Jackson’s numbers and Verizon’s numbers, and then

concludes that there is no reason for the differences each time.

          From the premise that there is no reason for any difference between Jackson’s

metrics and Verizon’s metrics, Musey concludes that the best way to forecast

Jackson’s future performance is to assume that Jackson’s financial performance

should be on par with or trend towards Verizon’s overall performance.176 Musey

provides no support for this assumption other than the “significant unwarranted

differences between forecasted results for [Jackson] compared to the predicted

results for Verizon, in particular differences related to penetration rates and EBITDA

margins.”177 On the other hand, Respondent’s expert, Thompson, provides four

plausible explanations for why Jackson’s results could be different than Verizon at

a national level.

175
   Id. at 50–51. For the period 2007 through 2017, Jackson’s churn rate increased from
1.59% in 2007 to 1.77% in 2017, with a low of 1.43% in 2011 and a high of 2.1% in 2014.
Verizon’s churn data is incomplete as there is no data available for 2017. In 2007,
Verizon’s postpaid wireless churn rate was 0.91%, and in 2009, it was 1.07%. The
minimum wireless customer churn rate for the period 2007 to 2012 was 1.19% and the
maximum was 1.38%. Churn is an industry metric to calculate market share and measures
of the number of subscribers who disconnect their service during a given period. In re
Cellular, 2022 WL 698112, at *13.
176
      JX 228 at 81–85.
177
      Id. at 81.

                                            39
         First, the existence of a significant regional competitor headquartered in the

Jackson MSA, C-Spire.         Thompson showed, albeit anecdotally, that C-Spire

maintained a significant presence in Mississippi. He also persuasively showed that

Musey’s analysis likely understated C-Spire’s market penetration in the Jackson

MSA.

         Second, Verizon/Alltel’s lack of prior incumbent local exchange carrier

(ILEC) services in the Jackson MSA.178 Verizon tended to have higher market share

in markets in which it had an existing customer base to sell its wireless services and

existing name recognition. Musey acknowledged that AT&T’s “ability to bundle

wireless and wireline services might enhance its competitive position against

Verizon.” 179

         Third, Verizon was late to Jackson MSA, as Jackson had only operated under

the Verizon brand since 2009. This lack of brand recognition could contribute to

Jackson’s underperformance relative to Verizon Wireless nationally.180

178
   An ILEC is a local telephone company that held a regional monopoly on landline
services before the market was opened to competitive local exchange carriers by the
Telecommunication Act of 1996. AT&T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 371
(1999).
179
      JX 228, at 48.
180
      JX 230, at 11

                                           40
          Fourth, Verizon’s market share in terms of data usage lags in Mississippi

when compared to other regions in the United States.181

          Thompson’s rebuttal is largely based on anecdotal evidence. Nevertheless, it

does provide the “plausible explanation” that Musey opines does not exist to explain

why Jackson’s market share is not the same as Verizon Wireless’s national market

share. In any event, Musey did not persuasively show that Jackson’s market share

in the Jackson MSA must be close to or at Verizon Wireless’s national average.

                      b.     The data concerns identified by Musey do not justify
                             throwing out management forecasts and replacing
                             them with hypothesized numbers based on Verizon’s
                             national performance

          Musey maintains that Jackson’s financials statements lack any integrity and

cannot serve as the foundation for reliable projections to value the Company.

Therefore, his projections should be adopted by the court. Musey is right in at least

one regard, management’s historical financials are undoubtedly wrong by some

unknown percentage. The NPA-NXX system for tracking Jackson subscribers, as

discussed above, is flawed. There surely are some number of Jackson NPA-NXX

numbers no longer operating primarily in Jackson and some number of non-Jackson

NPA-NXX numbers operating primarily in Jackson. Thus, management’s historical

181
      Id. at 6.

                                           41
financials are wrong by some percentage because service revenue is surely being

misallocated.

          The fact that management’s financials are off by some percentage, however,

does not justify adopting another set of financial projections that are also off by some

percentage. Musey provides no explanation, other than his belief that there is no

reason for Jackson’s performance to not be on par with Verizon Wireless’s, as to

why his financial projections are more accurate. The court is disinclined to throw

out historical financials and trends in favor of hypothesized trends without a

convincing explanation as to why the hypothesized trends are likely to create a more

accurate projection of a company’s cash flow. At a minimum, the historical trends

are based on the number of Jackson MSA NPA-NXX numbers in existence which

tethers the financials to reality, albeit inaccurately.

         Musey also points to unexplained jumps in revenues in 2010 and 2011, an

increase in the DTA balance in 2011, and spreadsheet cells that appear to pull in data

from other markets as a reason why this court should throw out management’s

projections based on the historical financials in favor of his hypothesized

projections.182 It appears that the cells linking to markets outside Jackson may be

182
      JX 228, at 66–67.

                                            42
the cause of the unexplained revenue jumps in 2010 and 2011.183 Further, Alltel

explained at trial that a large part of the DTA jump in 2011 was attributable to

Jackson’s purchase of cellular assets from Verizon.184 In the end, all Musey calls

into question is the reliability of management’s historical financials. But he does

not persuasively support replacing management’s projections that are based on those

historical financials with Musey’s projections that are based solely upon Verizon

Wireless’s overall performance.

                       c.    Excessive Capital Expenditures Adjustment Is Not
                             Adequately Explained or Persuasive
         Musey’s proposed adjustment to Jackson’s per share value due to what he

calls excessive capital expenditures is not adequately explained or persuasive.

Musey’s adjustment is based on the notion that historical capital spend is overstated

in management’s historical financials and that it should have been exactly Verizon’s

capital spend as a percent of revenues.185 As described in Thompson’s rebuttal

183
   Id. at 68. For example, in the “Forecast” tab JX 139, cell M:21 references the following:
“=’\\tpap1lrebua01.verizon.com\Partnerships_Accounting\Industry
Relations\PARTACC\2010-2012 year folders\2011Audit\12543 Fresno\[12543 Fresno
2011 Audit.xlsm]Stats’!$F$30/1000” (emphasis added). This cell is supposed to provide
the beginning subscriber number for 2010, which the model uses as an input to calculate
subscriber revenue. Thus, it appears that the spreadsheet may be pulling data from the
wrong market.
184
      Tr.I 134:16–136:9 (Junker).
185
      JX 228, at 64–67.

                                            43
report, Musey’s calculation of this excessive capital spend adjustment proceeds as

follows:

              1. Verizon’s Capital Expenditures as a percent of revenue times
                 Jackson’s revenue from 2003 through 2018 equals theoretical capital
                 expenditures for Jackson. This amount totals $102.8 million.
              2. Any historical capital expenditures in excess in Step 1 would be
                 considered excess and effectively damages for unasserted claims that
                 Jackson’s actual capital expenditures were [] legally improper. Any
                 deficit is effectively an offset to damages. The total Jackson capital
                 expenditures from 2003 through 2018 was calculated as $144.6 million
                 indicating, in Musey’s view, excess capital expenditures of $41.8
                 million.
              3. The “present value” calculation effectively acts as a form of
                 prejudgment interest by assuming a 6.8% compounded rate of return
                 on any excess or deficit since 2003. This increases the $41.8 million
                 excess capital expenditures in Step 2 to $105.4 million. Of this $105.4
                 million value, $64.1 million is derived from the 2003 to 2008 period,
                 which is before Respondent acquired its interest in Jackson.186

Musey posits that this adjustment is necessary because management’s historical

financials are unreliable and overstated. Musey supports this contention by, among

other things, pointing out that management’s financials pull in capital expenditures

from a spreadsheet that looks to be associated with Fresno California.187 Although

this court finds the spreadsheet irregularities are of concern, but they do not warrant

the blunt remedy that Musey advocates.

186
      JX 230, at 55.
187
      Tr.1, at 36:22–37:23 (Musey).

                                            44
          Musey’s assumption that Jackson’s historical capital spend from 2003

onward should have been exactly Verizon’s capital spend as a percent of revenue is

flawed. Jackson is its own market with its own idiosyncrasies. Jackson’s capital

spend as a percent of revenue invariably departed from Verizon’s national capital

spend as a percent of revenue at some point between 2003 and 2018.

         Musey also failed adequately to explain the financial valuation concepts and

principles that justify the adjustment. The excess capital expenditure adjustment is

only discussed briefly. To justify such a large adjustment in the per share value, a

more thorough and reasoned explanation is needed. What Musey presented was not

persuasive. Thus, this court declines to adopt an excess capital spend adjustment.

                       d.   DTA Adjustment is Not Justified

         Musey posits that an adjustment to Jackson’s per share value is justified

because of his belief that the capital expenditures included in the calculation of the

DTA are incorrect. Musey adjusted for this by “calculating (i) the present value

(using Verizon’s discount rate of 6.8%) of the difference between Jackson’s reported

capital expenditures and Jackson’s capital expenditures normalized using VZW’s

historical capital expenditures and (ii) the present value of the undocumented DTA

ending balance of December 31, 2002 of 42.240 million.”188

188
      JX 228, at 67.

                                          45
            As described in Thompson’s rebuttal report “The ‘present value’ is actually a

future value calculation labeled within the Musey working papers calculated as the

$14.7 million increased at a WACC of 6.8% for 16 years to a total value of $45.2

million.”189 The increase of $30.5 million represents a theoretical return on the

balance similar to prejudgment interest.190

            The DTA adjustment is not justified because it is not persuasively explained

or reasoned. Musey does not provide an explanation why this methodology is

appropriate to adjust for any errors in the DTA balance. Nor does he cite to any

academic literature, case law, or treatise to support his methodology. Further, as

pointed out in the Thompson rebuttal report, “it is unclear how the Company, or its

minority shareholders, could realize this value on a going concern basis as of the

Valuation date.”191 Thus, because the DTA adjustment lacks sufficient support and

explanation, the court declines to adopt it.

                  2.    Thompson’s Approach
            Thompson created his forecast by adjusting management’s projections created

in anticipation of the Jackson merger. Thompson started with the model that

189
      JX 230, at 55.
190
      Id.
191
      Id.

                                              46
Verizon’s management created in conjunction with merger planning.192 The base

model used the historical financials created by the PAG as a foundation for creating

its projections.193 Management’s model then used assumptions about the growth of

Jackson’s business to forecast Jackson’s performance into the future.194

         The majority of Thompson’s adjustments to management’s model were

updates to the model based on actual financial results existing as of the valuation

date that were not available when management created its model.195 For example,

Thompson adjusted the number of subscribers for 2018 down from 93,500 to 91,515

based on Jackson’s actual results for that period. This data was not available when

management made its projections but should be incorporated to make the historical

financials current as of the valuation date.

         Thompson also kept many forecasted metrics the same as management’s

model. For example, Thompson’s revised projections assume roaming revenue to

192
   JX 227, at 28–29. Thompson’s base model was one of a few models created in
conjunction with the merger process and closely resembled the model used to calculate the
merger consideration.
193
      JX 152A, at 10–11.
194
      JX 137.
195
      JX 227, at 29.

                                           47
be identical to management’s forecasts and calculated all items associated with cost

of service based on the same formulas applied in management’s forecast.196

          Thompson adjusted commission expense to correct for a discrepancy caused

by the adoption of Accounting Standards Codification topic 606 (“ASC 606”). ASC

606 changes the expensing of commissions from being immediately expensed to

being capitalized and expensed over a multi-year period. The impact of this change

was that for 2018, the financials understated commission expense by approximately

$0.8 million.       Thompson adjusted the 2018 commission expense for that

understatement and used the base model’s assumption for the expected decline in

commission expenses during the remaining projection period.197

          Thompson’s most significant alteration to Jackson’s financials was the EDGE

cash flow adjustment accounting for the bulk of the difference between the merger

consideration price and Thompson’s proposed valuation. Thompson disagreed with

management’s treatment of EDGE accounts receivable as a cash flow adjustment.198

In management’s model, an increase in EDGE receivables would decrease free cash

196
      Id. at 31.
197
      Id. at 32.
198
      Id. at 33.

                                           48
flow.199 Thompson treated any change in EDGE receivables as a cash-neutral event

because of Verizon’s practice of securitizing their EDGE receivables.200 Thompson

then constructed a hypothetical EDGE interest expense by:

            1) Calculating the annual EDGE-related sales for each year of the projection
               period by multiplying projected equipment revenue by the percent of
               EDGE sales.
            2) Estimating the annual projected EDGE balance as 25% of the prior year’s
               equipment revenue and 75% of the current year’s equipment revenue,
               assuming equipment sales occur evenly throughout the year and a two-year
               payback period.

            3) Multiplying the estimated edge balance by an interest rate of 3.30%.
               Thompson calculated the 3.30% interest rate by choosing an interest rate
               slightly below the midpoint between the average and weighted average of
               the interest rate on Verizon’s asset-backed debt.

Thompson provided no explanation for why the projected EDGE balance would be

equal to 25% of the prior year’s equipment revenue and 75% of the current year’s

equipment revenue. Thompson also did not provide much explanation for his

reasoning as to why 3.30% was the correct estimated interest rate. Petitioners did

199
   Id. Working capital = current assets(less cash) – current liabilities. When calculating
free cash flow (“FCF”) cash should not be included as a current asset for the purposes of
calculating working capital because cash is considered a non-operating asset. The change
in net working capital from the last period to the current period is subtracted out of free
cash flow because if current assets are rising, the business is investing cash in the business
in a way that is not captured on the income statement as an operational expense. In
management’s model, when EDGE receivables increased, current assets increased
resulting in an increase in current assets that decreased Jackson’s FCF.
200
      Id.

                                             49
not challenge this adjustment which results in a higher valuation over the merger

price. Although this court would have appreciated a better explanation of the EDGE

receivables adjustment in the expert reports, the briefing, or at trial because of the

significant impact it has on Jackson’s cashflows, this court accepts that the EDGE

transactions were a cashflow neutral event and that changes in the EDGE receivables

should not affect Jackson’s cashflows.

      Importantly, Thompson does not attempt to make any revenue adjustments to

account for the shortcomings of the NPA/NXX subscriber tracking system.

             3.    The Court’s Weighted Average Approach

      Neither party persuasively established that the projections used in their DCF

model were reliable. That is attributable to Jackson’s use of NPA/NXX to track

subscribers, which Petitioner demonstrated is outmoded and inherently unreliable

due to the advent of nationwide plans and number portability in the early years of

the new millennium. Vice Chancellor Laster detailed those shortcomings in In re

Cellular, where the valuation date was 2011. The weaknesses in using NPA/NXX

to track subscribers was surely no less pronounced at the time of the Jackson merger

in 2019.

      Both sides have used management’s NPA/NXX subscriber data and revenue

forecast as the starting point for their own projections. Thompson did not attempt

to adjust management’s projections to subscriber revenue to account for any

                                         50
shortcomings reflected in the use of NPA/NXX. Musey, on the other hand, adjusted

the projections to reflect Jackson’s subscriber base to converge with Verizon’s

national subscriber rate. Both sets of forecasts are less than ideal and unpersuasive.

      Musey’s forecasts are unpersuasive because they make the unsupported

assumption that Jackson’s market penetration rates should be essentially the same as

Verizon nationals market penetration rates. Thompson’s forecasts are unpersuasive

because they fail to account for the distorting effect of the NPA/NXX subscriber

system. Because both parties have presented unpersuasive evidence, the court must

conduct its own analysis.     Despite NPA/NXX’s flaws, the court is left with

NPA/NXX as the starting point for a key revenue driver in the DCF model.

      This court finds that the appropriate solution is to create a blended share price

using two iterations of the model discussed below. The first iteration will use

Thompson’s financial projections and receive a weight of 70%. The second iteration

will use Thompson’s projection spreadsheet but incorporate Musey’s Scenario Two

wireless service revenue projection for 2019 and receive a 30% weight. The court

accomplished this by first forecasting the equipment revenue, roaming revenue, and

other revenue found in Thompson’s model for the year 2018 into 2019 using

Thompson’s growth rate for 2019. Then the court summed this revenue figure with

Musey’s 2019 wireless service revenue projection for 2019. This final sum then

served as the base revenue number upon which revenue is forecasted for the

                                         51
remainder of the projection period. Revenue is forecasted to grow during the

projection period in accordance with Thompson’s posited revenue growth

percentages. The two iterations will then be averaged to arrive at Jackson’s per share

value. Those projections will not include Musey’s excess the capital expenditure or

DTA adjustments proposed by Musey.

      This court uses Musey’s Scenario Two as opposed to Scenario One because

the experts in the case presented the court with two realities and Scenario Two better

captures Musey’s proposed state of the world. Thompson presented a world in

which the PAG’s subscriber records were accurate, and management’s forecasts

based off those records were reliable. Musey presented a world in which the PAG’s

records were unreliable, and that Jackson’s financial metrics should be on par with

Verizon Wireless’s national metrics because Jackson was an indistinguishable part

of Verizon’s national business. Scenario One reflects a transition from Thompson’s

posited state of the world to Musey’s posited state of the world over the projection

period. Thus, Musey’s Scenario Two is the appropriate model to average with

Thompson’s because it represents Musey’s proposed state of the world from the

outset of the projection period.

      This court finds that weighting and averaging models that use Thompson’s

revenue projections and Musey’s Scenario Two revenue projections, while

imperfect, better reflects Jackson’s future revenue than either of the experts’ models

                                         52
alone.     Thompson’s model reflects revenue projections on the concrete, but

inaccurate, NPA/NXX subscriber tracking system. Musey’s model reflects an

attempt to adjust for the inaccuracies inherent in the outdated NPA/NXX system to

track subscribers. But it goes too far by assuming Jackson’s market penetration rate

is the same as Verizon Wireless’s nationwide rate with only small alterations. By

running Thompson’s model, as adjusted by this court, twice—once with

Thompson’s revenue projections and once with Musey’s revenue projections—the

court strikes a balance between two possible states of the world.

         The respective weights of the models reflect the court’s credibility

determination of the two projections. Thompson’s management-based forecasts

were more credible than Musey’s because they were based on a metric that at one

time accurately reflected the Jackson’s market penetration. Musey’s forecasts,

however, made a welcome attempt to adjust for the inaccuracies created by the

NPA/NXX system. Without concrete subscriber data, the court’s weighted averaged

approach attempts to account for the drawbacks of using the NPA/NXX subscriber

accounting system exclusively to derive subscriber revenue.

                                         53
      C. The Discount Rate

            The discount rate is the interest rate used to determine the present value of

future cash flows.201 Thompson used Jackson’s cost of equity as determined by his

capital asset pricing model as Jackson’s discount rate.202 Musey, on the other hand,

used Verizon’s weighted average cost of capital as Jackson’s discount rate.203

            In a DCF model, the discount rate is typically the weighted average cost of

capital (“WACC”) to the firm.204 The WACC is “an average of the costs of all

sources of capital for the company, with each source weighted by its respective

percentage share in the capital structure of the company.”205 Generally, a company’s

sources of capital are equity and debt.206 The WACC is selected as the discount rate

because it represents the expected rate of return that market participants require in

order to attract funds to a particular company.207 In other words, the WACC

201
      Finkelstein & Hendershot, at V.E.3.
202
      JX 227, at 51.
203
      JX 228, at 84, 87.
204
      Finkelstein & Hendershot, at V.E.3.
205
      Hintmann v. Fred Weber, Inc., 1998 WL 83052, at *3 (Del. Ch. Feb. 17, 1998).
206
      Id.
207
   SHANNON P. PRATT & ASA EDUCATIONAL FOUNDATION, SHANNON PRATT’S VALUING
A BUSINESS 208 (6th ed. 2022).

                                              54
represents the opportunity cost of forgoing the next best alternative investment.208

WACC can be expressed as follows:

                                    𝑉𝑒             𝑉𝑑
                       𝑊𝐴𝐶𝐶 =            × 𝐶𝑒 +         (1 − 𝑡) × 𝐶𝑑
                                 𝑉𝑒 + 𝑉𝑑        𝑉𝑒 + 𝑉𝑑

Where:

𝑉𝑒 = 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦

𝑉𝑑 = 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐷𝑒𝑏𝑡

𝐶𝑒 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦

𝐶𝑑 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡

𝑡 = 𝑡𝑎𝑥 𝑟𝑎𝑡𝑒

            The cost of equity is typically calculated through the capital asset pricing

model (“CAPM”).209 The CAPM is “a generally accepted method of determining a

company’s cost of equity by reference to the risk-free rate of return, the market risk

premium[,] and the differential between investment in a particular industry or

company and investment in a diversified portfolio of stocks.”210 Essentially, the

CAPM estimates the expected return of an investment based on its riskiness relative

208
      Id.
209
      Finkelstein & Hendershot, at V.E.3(a).
210
      Hodas v. Spectrum Tech., Inc., 1992 WL 364682, at *3 (Del. Ch. Dec. 8, 1992).

                                               55
to the rest of the market.211 It achieves this by adding to the risk-free rate the risk

premium associated with investing in a diversified portfolio of stocks modified by a

particular stock’s riskiness relative to the rest of the market (i.e., beta). Other

premiums can be added to capture risks not captured by the general equity risk

premium (e.g., risks associated with investing in smaller companies). The expected

rate of return on equity can be understood to be its cost because it is the return that

an investor would require to invest in the company’s equity. The CAPM can be

expressed as:

                               𝐶𝑒 = 𝑅𝑓 + 𝐵(𝑅𝑃𝑚 ) + 𝑅𝑃𝑠

Where:

𝐶𝑒 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦

𝑅𝑓 = Rate of return available on a risk-free security as of the valuation date

𝐵 = Beta

𝑅𝑃𝑚 = 𝑀𝑎𝑟𝑘𝑒𝑡 𝑒𝑞𝑢𝑖𝑡𝑦 𝑟𝑖𝑠𝑘 𝑝𝑟𝑒𝑚𝑖𝑢𝑚 = 𝐸𝑅𝑚 − 𝑅𝑓

𝑅𝑃𝑠 = 𝑅𝑖𝑠𝑘 𝑝𝑟𝑒𝑚𝑖𝑢𝑚 𝑓𝑜𝑟 𝑠𝑚𝑎𝑙𝑙 𝑠𝑖𝑧𝑒

𝐸𝑅𝑚 = 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑚𝑎𝑟𝑘𝑒𝑡 𝑟𝑒𝑡𝑢𝑟𝑛

211
      PRATT, supra note 207, at 222–23.

                                          56
            The CAPM model typically derives the risk-free rate from government

treasury obligations.212 Treasury bills are typically considered nearly free of default

risk because they are backed by the full faith and credit of the United States

government.213 The market risk premium is the excess of the expected rate of return

for a representative stock index over the riskless rate.214

            Beta is a function of the excess expected return over the riskless rate on an

individual security relative to the excess expected return over the riskless rate on a

market index.215 Beta is determined by regressing the percentage change in stock

prices of the individual company against the percentage change in the overall stock

index.216 The beta for private companies must be estimated based on the betas of

comparable, publicly traded companies because a privately held company does not

have stock returns against which to regress the market’s returns.217

            When estimating a private company’s beta by taking the mean of other

companies’ betas, it is important to select public companies that are comparable to

the private company. Comparable companies are generally defined as companies in

212
      Finkelstein & Hendershot, at V.E.3(a) n.146.
213
      PRATT, supra note 207, at 214–15
214
      Id. at 216–17.
215
      Id. at 222–32.
216
      Id.
217
      Id.

                                              57
the same line of business or more generally, companies that are affected by the same

economic forces that affect the firm being valued.218 To check if a group of

comparable firms is truly comparable, one can “estimate a correlation between

revenues or operating income of the comparable firms and the firm being valued.”219

If the correlation is high, the firms are comparable.220

            A size premium may be added when determining the cost of equity for a

smaller company “to account for the higher rate of return demanded by investors to

compensate for the greater risk associated with small company equity.”221

            When valuing a division or line of business within a company, it is generally

accepted that one “cannot simply apply the company’s overall WACC to determine

the value of each individual business, if the risk profiles are different.”222 This is

because the firm is viewed as a portfolio of businesses comprised of its division,

with each such business or division having distinctive characteristics.223 Thus,

218
   Aswath Damodaran, Private Company Valuation, https://pdfs.semanticscholar.org/
c94a/584368b85eb7197c66f910db970a759b3010.pdf (last visited Sept. 12, 2022);
ROBERT W. HOLTHAUSEN & MARK E. ZMIJEWSKI, CORPORATE VALUATION: THEORY,
EVIDENCE & PRACTICE 527–30 (2014).
219
      Damodaran, supra note 218.
220
      Id.
221
      Gearreald v. Just Care, Inc., 2012 WL 1569818, at *10 (Del. Ch. Apr. 30, 2012).
222
  SHANNON P. PRATT & ROGER J. GRABOWSKI, COST OF CAPITAL: APPLICATIONS AND
EXAMPLES 469 (4th ed. 2010).
223
      Id.

                                              58
generally, when valuing a distinct part of a business, a distinct WACC for that part

of the business should be calculated. Nevertheless, being a member of a division of

a larger company can mitigate risks associated with being a smaller division.224 For

example, the credit quality of the larger company affects the cost of debt for the

division.225 Moreover, in a larger company, there “may be firmwide integration of

the financing function and a consequent reduction in the apparent risks of business

size of a [smaller] division . . . .”226

                    1. Thompson’s Approach

            In determining the appropriate discount rate with which to value Jackson,

Thompson only included Jackson’s cost of equity.227 Thompson supported his

decision to not include Jackson’s cost of debt in his discount rate by stating in his

rebuttal report:

            Functionally, the only debt that Jackson had immediate access to was
            the DTA from Verizon. The DTA was being paid down over the prior
            several years and becoming a smaller part of the capital structure for
            Jackson. The proper approach to discounting the cash flows in the DCF
            was to use the cost of equity and account for the payoff of the DTA as
            performed in the Thompson Opening Report.228

224
      Id. at 472.
225
      Id.
226
      Id.
227
      JX 230, at 39.
228
      Id.

                                             59
          Thompson estimated Jackson’s cost of equity from the perspective that

Jackson is a standalone entity, separate from its corporate parent.229 This perspective

was based on the position that the value of business units should be measured

separately from their corporate parents.230

          To estimate Jackson’s cost of equity, Thompson used the CAPM. For the

risk-free rate, he used the yield on the 20-year U.S. Treasury bonds as of the

valuation date—2.73%.231 Thompson estimated beta by examining the unlevered

betas for a group of “comparable” firms.          Thompson sourced his comparable

companies from S&P’s CapitalIQ financial database.232 His selection methodology

consisted of procuring “a Telecommunication Services report listing all publicly

traded Telecommunication Services companies” and then screening the list to

include only companies traded on major U.S. Exchanges.233 Thompson further

screened this list by removing a company with a statistically insignificant beta and

229
      JX 227, at 44.
230
    Petitioner argues that Thompson’s opinion should be disregarded because he did not
value Jackson as a “going concern,” denying the Company’s operative reality as of the date
of the merger. Petitioner’s Opening Br. 42-43. The court disagrees. Thompson explained
that he valued Jackson as a going concern, recognizing its operation under the Verizon
umbrella. See, e.g., Tr. 391:2-4; 392:24-393:12; 393:22-24; 394:8-11; 395:14-17
(Thompson).
231
      Id. at 46.
232
      Id. at 48.
233
      Id. at 50.

                                           60
excluding AT&T because “less than half of its revenue is derived from the wireless

business.”234 He then determined the median beta of these companies over various

time periods. Then, Thompson selected the median of the median betas as Jackson’s

proxy beta. Finally, Thompson re-levered this median beta using Jackson’s implied

financial leverage of 10% debt and 90% equity resulting in a levered beta of 0.80.235

         Thompson did not explain in his report how he determined Jackson’s implied

financial leverage or why he used this implied metric over some other metric. From

his spreadsheet model, it appears that Thompson calculated the implied financial

leverage by taking a modified version of the indicated value of 100% of the equity

as determined by his DCF model and then comparing that amount with the DTA

balance as of March 31, 2019.236

         Thompson’s selection of his comparable companies did not inspire confidence

in his approach. For example, Musey points out that Lumen and Cincinnati Bell are

not in the wireless business.237 That alone might not render them not comparable.

234
   Id at 47 n.79. This left the following companies: 1) Verizon Communication Inc., 2) T-
Mobile US, Inc., 3) Lumen Technologies, Inc., 4) United States Cellular Corporation, 5)
Cogent Communications Holdings, Inc., 6) Shenandoah Telecommunication Company, 7)
Cincinnati Bell Inc., 8) Consolidated Communication Holdings, Inc., 9) Alaska
Communications Systems Group, Inc.
235
      JX 227, at 48.
236
      JX 227A (DCF tab & CAPM tab).
237
      JX 229, at 17–32.

                                           61
But Thompson removed AT&T from his list of comparable companies initially

because less than half of its revenues were derived from wireless revenues. He does

not explain this inconsistency. Further, Thompson does not provide a reasoned

analysis for his selection of comparable companies beyond the aforementioned

exclusions and fails to conduct any tests to ensure the comparability of his selected

comparable companies.

         Thompson selected the long-horizon expected equity risk premium of 6.04%

as his equity risk premium.238 This premium represents the average difference

between the returns on large stocks and long-term government bonds from 1926 to

2017 adjusted for historical changes in price-to-earnings ratios.

         Thompson applied a size premium of 5.22%, which was the size premium for

companies in the 10th decile by market capitalization. This premium is the premium

that the Duff & Phelps Cost of Capital Navigator suggests for companies that have

a market capitalization between $2.5 million and $322 million. Under Thompson’s

methodology, the implied market capitalization of Jackson, using the squeeze-out

price of $2,963 per share, is $46 million which places it in that range.

         Combining the above inputs, Thompson concluded that Jackson’s cost of

equity was 12.9%. The below describes how Thompson arrived at his cost of equity:

238
      JX 227, at 50.

                                          62
                               𝐶𝑒 = 𝑅𝑓 + 𝐵(𝑅𝑃𝑚 ) + 𝑅𝑃𝑠

                           𝐶𝑒 = 2.73% + 0.80(6.14%) + 5.22%

                                𝐶𝑒 = 12.9% (rounded)

Because Thompson did not include the cost of debt in his discount rate, Jackson’s

cost of equity was Thompson’s selected discount rate.

                   2.   Musey’s Approach

          Musey eschewed the CAPM model and simply assumed that Jackson’s

WACC was the same as Verizon’s WACC.239 Musey based this assumption on his

assertion that Jackson was a fully integrated part of Verizon Wireless.240 He claimed

that Jackson’s integration warrants using Verizon’s cost of capital because this is a

more accurate reflection of Jackson’s operative reality and associated risks.241 To

support this contention, Musey cites to In re AT&T Mobility Wireless Operations

Holdings Appraisal Litigation, in which the court used AT&T’s levered beta and

capital structure to value one of AT&T’s subsidiaries because it reflected the

239
      JX 228, at 84, 87.
240
      Id. at 80.
241
      JX 229, at 41.

                                           63
integrated, affiliated nature of the business.242 Musey concludes that Verizon’s 6.8%

WACC should be the discount rate applicable to Jackson.243

                3.     The Court’s Blended Approach
         The court concludes that an approach which blends Thompson’s and Musey’s

analyses should be used to determine Jackson’s discount rate. Jackson’s cost of

capital must take into consideration the reality that Jackson benefits from its

relationship with Verizon.

                         a. Risk-Free Rate
         This court accepts Thompson’s use of the rate of return on a twenty-year

United States Treasury bond of 2.73% as of the valuation date for the risk-free rate.

Additionally, the court accepts the use of the long-horizon expected equity risk

premium of 6.04% as the equity risk premium. Both inputs to the model comport

with standard methodology and do not raise a significant issue.

                         b. Capital Structure and Beta
         Jackson’s capital structure and beta are assumed to be that of Verizon’s, which

reflect the degree to which Jackson was integrated with Verizon. The use of

Verizon’s capital structure and beta is supported by the lack of a sufficiently

convincing alternative analysis.       Thompson took an inconsistent approach in

242
      2013 WL 3865099, at *4 (Del. Ch. June 24, 2013).
243
      JX 229, at 41.

                                            64
determining Jackson’s beta, including companies that do not operate in the wireless

industry, while excluding AT&T because less than half of its revenue is attributable

to the wireless business. Using Verizon’s beta reflects the operative reality that

Jackson was operated, branded, and financed by Verizon.244 It is also the approach

taken in the closely analogous precedents of In re Cellular and In re AT&T Mobility,

where the court valued a telecommunications partnership similarly intertwined with

its parent.245 Following this precedent, this court believes that it is similarly

appropriate to use Verizon’s beta and capital structure. Thus, this court adopts

Verizon levered beta of 0.65 using a five-year weekly lookback period. This court

further adopts Verizon’s capital structure of 30% debt and 70% equity as presented

in Thompson’s rebuttal report and trial testimony.246

                          c. Size Premium

         Appling a size premium increases the company’s cost of equity, resulting in

an increase in the discount rate. “That in turn lowers the present value of cash flows

and results in a lower valuation estimate.”247

244
      Tr.I 285:6–19; Junker Dep. 89:6–87:12 (Macuszonok).
245
      In re Cellular, 2022 WL 698112, at *53; In re AT&T Mobility, 2013 WL 3865099, at
*4.
246
      JX 230, at 36, Schedule D-2; Tr.II 345:6–21 (Thompson).
247
      In re Cellular, 2022 WL 698112, at *53.

                                            65
         “The use of a size premium is a subject of some controversy.” 248 Musey

insists that a size premium is inappropriate here, because Jackson was a fully

integrated part of Verizon’s larger, nationwide business operations and does not face

the traditional non-diversifiable risk that apply to small companies.249 He also points

to other decisions of this court that did not apply a size premium.250 Musey criticizes

the specific size premium applied by Thompson because the 10th Decile Size Premia

Studies used in the Thompson Report “include large numbers of distressed

companies and those with negative earnings.”251 Musey states that these companies

are inappropriately included in the calculation of Jackson’s size premium because

Jackson is neither distressed nor revenue negative.

         Ramcell’s objected to applying any size premium, but did not meaningfully

join issue on the appropriate the actual percentage of the premium in the event the

court were to conclude one is warranted. Except for a passing criticism of the types

248
   Dunmire v. Farmers & Merchants Bancorp of W. Penn., Inc., 2016 WL 6651411, at
*12 n.139 (Del. Ch. Nov. 10, 2016); see JX 229, at 35. Musey acknowledges that he is
“not taking the position that size premiums are never applicable.” JX 229, at 34.
249
      JX 229, at 36.
250
   JX 229, at 35 (citing Merion Cap. L.P. v. Lender Processing Servs., Inc., 2016 WL
7324170, at *29 (Del. Ch. Dec. 16, 2016) (declining to use a size premium); AT&T
Mobility, 2013 WL 3865099, at *4 (declining to include a small company risk premium in
an appraisal action involving small cellular companies operated as part of the parent’s
nationwide network).
251
      JX 229, at 35.

                                          66
of companies contained in the tenth decile of the Duff & Phelps data, Musey did not

challenge Thompson’s figure of 5.99%.

         The court agrees that a size premium is appropriate in this case, but it must

reflect the reality of Jackson’s integration in and heavy reliance upon Verizon. “This

Court may adjust a company’s size premium where sufficient evidence is presented

to show that the company’s individual characteristics make it less risky than would

otherwise be implied under its corresponding Ibbotson decile based on size

alone.”252 Those characteristics are present here. Thompson did not attempt to risk

adjust his size premium.

         An adjustment to the size premium is necessary here to recognize the

operative reality that Jackson was a Verizon division, operating under the network

brand with unconditional support from the mothership. Thompson did not attempt

to calibrate his size premium to the operative reality. Conversely, the Petitioner has

not offered any meaningful help. Ramcell simply rolled the dice on the size premium

issue, taking an all-or-nothing approach.

         In re Cellular is a closely analogous case, involving a national wireless

company acquiring the remaining equity interests that it did not already own in

several small cellular partnerships. The court noted that in two prior appraisal cases

252
      Gearreald, 2012 WL 1569818, at *12.

                                            67
“involving similar market-level entities” the court came to different conclusions on

whether to apply a size premium,253 but on the record before it was persuaded that a

size premium, subject to reasonable adjustment, was appropriate.254

         The court is persuaded that a size premium should be applied to Jackson’s

cost of equity to reflect the notion that one “cannot simply apply the company’s

overall WACC to determine the value of each individual business, if the risk profiles

are different.”255 Jackson has distinct risks from Verizon as a whole as its operations

are geographically confined to a three counties with income levels and population

growth below the national average.256 Verizon, as a whole, operates on a national

basis serving regions of varying density, income levels, and population growth.257

Thus, different risk factors affect Verizon and Jackson and it is appropriate to adjust

Jackson’s cost of equity to capture how Jackson’s size affects its riskiness.

253
   In re Cellular, 2022 WL 698112, at *54 (citing AT&T, 2013 WL 3865099, at *4
(declining to apply a size premium), and B&L Cellular v. USCOC of Greater Iowa, LLC,
2014 WL 5342715, at *2 (Del. Ch. Dec. 8, 2014) (adopting the use of a size premium
where the local partnership was operated as part of the larger national cellular company)).
254
   In re Cellular, 2022 WL 698112, at *54. Petitioner here did not address this aspect of
the In re Cellular decision in its post-trial briefs. Notably, Musey was an expert for the
plaintiffs in that case, who were also represented by some of the same counsel representing
the Petitioner in this case.
255
      PRATT, supra note 207, at 469
256
      JX 227, at 19–22.
257
      JX 230, at 12.

                                            68
Nevertheless, the size premium should reflect the reality that the risks associated

with Jackson’s size are mitigated by Jackson’s integration with Verizon.

            In In re Cellular, the defendant’s expert started with a 3.99% premium

indicated by the micro-cap decile from the 2010 Ibbotson SBBI Yearbook, and then

subtracted 1-percentage point “to reflect AT&T’s involvement for a total size

premium of 2.99%.”258 The court found this adjustment to be based upon a

“reasoned judgment” and accepted it.259 Here, the court applies a size premium of

3.22% to Jackson, which reflects a two percentage point reduction from Thompson’s

calculation.

            The calculation of Jackson’s cost of equity can be seen below:

                                 𝐶𝑒 = 𝑅𝑓 + 𝐵(𝑅𝑃𝑚 ) + 𝑅𝑃𝑠

                           𝐶𝑒 = 2.73% + 0.65(6.14%) + 3.22%

                                   𝐶𝑒 = 9.9% (rounded)

                           d. Cost of Debt and Tax Rate
            The court applies a 4.0% cost of debt for Jackson, using Thompson’s

calculation of Verizon’s cost of debt. Thompson arrived at a 4.0% cost of debt for

Verizon “based on the midpoint between the yields on Verizon’s most recently

258
      In re Cellular, 2022 WL 698112, at *54.
259
      Id.

                                             69
issued long term debt as of the Valuation Date.”260 Although Jackson had access to

debt at the applicable federal funds rate through the DTA balance, using Verizon’s

cost of debt is consistent with the adopted approach of using Verizon’s capital

structure and beta.261 This court further adopts a 26.0% corporate tax rate for the

purposes of calculating Jackson’s WACC as presented in both Musey’s and

Thompson’s rebuttal reports.262

                           e. WACC Calculation

         With all the elements of Jackson’s WACC accounted for, Jackson’s WACC

can be seen represented below:

                                     𝑉𝑒             𝑉𝑑
                      𝑊𝐴𝐶𝐶 =              × 𝐶𝑐 +         (1 − 𝑡) × 𝐶𝑑
                                  𝑉𝑒 + 𝑉𝑑        𝑉𝑒 + 𝑉𝑑

   𝑉𝑒
        = 𝐸𝑞𝑢𝑖𝑡𝑦 𝑃𝑜𝑟𝑡𝑖𝑜𝑛 𝑜𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑆𝑡𝑟𝑢𝑐𝑡𝑢𝑟𝑒 = 70%
𝑉𝑒 + 𝑉𝑑

   𝑉𝑑
        = 𝐷𝑒𝑏𝑡 𝑃𝑜𝑟𝑡𝑖𝑜𝑛 𝑜𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑆𝑡𝑟𝑢𝑐𝑡𝑢𝑟𝑒 = 30%
𝑉𝑒 + 𝑉𝑑

𝐶𝑒 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 = 9.9%

𝐶𝑑 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡 = 4%

𝑡 = 𝑡𝑎𝑥 𝑟𝑎𝑡𝑒 = 26%

260
      JX 230, at 36 & 36 n.53.
261
  See In Re Cellular, 2022 WL 698112, at *53 (adopting the same approach and using
AT&T’s cost of debt).
262
      JX 229, at 45; JX 230, at 36.

                                             70
                      𝑊𝐴𝐶𝐶 = 70% × 9.9% + 30%(1 − 26%) × 4%

                                      𝑊𝐴𝐶𝐶 = 7.847%

As shown above, this court adopts a WACC of 7.847% for Jackson.

      D. The Terminal Value

            The terminal value is the present value of all the company’s future cash flows

beginning after the projection period.263 There are several methods available to

calculate the terminal value.264 Here, both Musey and Thompson agree that a

perpetual growth method is the most suitable approach for calculating Jackson’s

terminal value.265 Musey and Thompson, however, rely on different perpetual

growth rates and different types of perpetual growth models to determine Jackson’s

terminal value. Musey opines that the growth rate should be 2.77% while Thompson

believes that it should be 2.00%. Further, Musey believes that the standard Gordon

Growth Model (“GGM”) should be used while Thompson believes that the

McKinsey Value Driver (“MVD”) should be used. A 2.20% growth rate, calculated

using a slightly altered version of Musey’s methodology, is appropriate. On the

other hand, this court believes that Thompson’s MVD model with some alterations

is the more appropriate model for valuing Jackson.

263
      Finkelstein & Hendershot, supra note 131, at V.E.2.
264
      Id.
265
      JX 227, at 51; JX 228, at 81–82.

                                              71
          A perpetual growth model assumes cash flows to grow at a constant rate in

perpetuity.266 Essential to this assumption is the selection of the correct growth rate.

It should be recognized at the outset that “ascertaining a growth rate in

perpetuity . . . is an inherently speculative exercise.”267 The general bounds of the

perpetuity growth rate are the rate of inflation at a minimum and the nominal rate of

growth in the economy. As described in the 3M Cogent decision:

          “A viable company should grow at least at the rate of inflation
          and . . . the rate of inflation is the floor for a terminal value estimate for
          a solidly profitable company that does not have an identifiable risk of
          insolvency.” But, a terminal growth rate should not be greater than the
          nominal growth rate for the United States economy, because “[i]f a
          company is assumed to grow at a higher rate indefinitely, its cash flow
          would eventually exceed America’s [gross national product].”268

The growth rate should be justifiably related to the company being valued or its

industry. “Without a valid explanation, the use of a generic growth rate is inherently

flawed and unreasonable” especially when industry growth rates are available.269

266
      JRC Acquisition, 2004 WL 286963, at *2.
267
      Id. at *4.
268
   3M Cogent., 2013 WL 3793896, at *21 (first quoting Global GT LP v. Golden Telecom,
Inc., 993 A.2d 497, 511 (Del. Ch. 2010); then quoting BRADFORD CORNELL, CORPORATE
VALUATION: TOOLS FOR EFFECTIVE APPRAISAL AND DECISION MAKING 146–47 (1993)).
269
  Dobler v. Montgomery Cellular Hldg. Co., 2004 WL 2271592, at *10 (Del. Ch. Oct. 4,
2004) (internal quotations omitted), aff’d in relevant part, rev'd on other grounds, 880 A.2d
206 (Del. 2005).

                                               72
                   1. The Growth Rate

            Thompson unconvincingly used generic growth rates to estimate Jackson’s

perpetuity growth rate. Thompson begins his discussion of the long term growth

rate by appealing to generalized rules about what growth rates should be, stating:

“[f]or companies that have normal . . . long term growth prospects the [perpetuity

growth rate] should mirror the inflation rate plus the long-term real growth rate of

the overall economy . . . .”270 Thompson then provides a table of various long-term

nominal growth rates and proceeds to summarily state that one half of the nominal

economic growth forecasts, 2.00%, is an appropriate growth rate, “based on the

history of declining ARPU both at the [c]ompany and industry levels along with the

low to negative growth in population for Jackson MSA.”271 His estimate effectively

assumes no inflationary growth but a small amount of real growth.272

            Thompson’s approach is unconvincing because of its reliance on generic

growth rates and its unreasoned decrease of the nominal United States growth rate

by half. Thompson fails to look at industry growth rates. Further, Thompson does

not support his decision to cut his chosen generic growth rates in half. Although,

Thompson does point to declining ARPUs and the low to negative growth in

270
      JX 227, at 52.
271
      Id. at 53.
272
      Id.

                                           73
population for the Jackson MSA, he does not explain why these general trends justify

a halving the United States nominal growth estimates. Thompson’s assumption that

Jackson will experience no inflationary growth, but a small amount of real growth

is not convincingly supported and the court declines to adopt it.

         Musey, on the other hand, persuasively presents the average of industry

growth forecasts discounted for Jackson MSA-specific characteristics as the long-

term growth rate for Jackson. Musey averaged the consensus analyst forecast for

Verizon’s long-term growth rate, the SNL Kagan Wireless Industry forecasted

growth rate for the wireless industry, and the growth rate from a prior court of

Chancery wireless valuation opinion.273 The average of these rates was 3.37%.

Next, Musey decreased the average growth rate by the difference between Jackson’s

five-year trailing population growth and the United States’ five-year trailing

population growth. The difference between the population growth rates was 0.60%,

resulting in Musey’s long-term growth rate was 2.77%.274

273
   JX 228, at 72. The wireless industry growth estimates used by Musey were 1)
Consensus Analyst Long-Term Growth for Verizon: 3.02%; 2) Consensus Analyst
Revenue Growth for Verizon OVERALL (2018–2022): 1.54%; 3) SNL Kagan Wireless
Industry Revenue Growth (2018–2022): 3.12%; 4) Consensus Analyst EBITDA for
Verizon (2018–2022): 3.32%; 5) SNL Kagan Wireless Industry EBITDA Growth (2018-
2028): 3.33%; 6) Consensus Analyst Free Cash Flow growth for the Verizon (2018–2022):
7.00%; 7) Verizon Free Cash Flow Growth for the Partnership (2019–2028): 2.3%; 8)
Delaware Chancery: Concluded Long-Term Growth of Spring/Clearwire: 3.35%.
274
      JX 22, at 72.

                                         74
         Musey convincingly presented his long-term growth rate because it was based

on industry specific growth rates and factors unique to the Jackson MSA. Although

Musey does not explain the exact mathematical or numeric relationship between

population and the long-term growth rate implicit in his calculation of the 2.77%

number, his reliance on an average of industry specific growth rates discounted by

Jackson specific factors is more convincing than Thompson’s use of generic growth

rates slashed in half.

         At trial and in his rebuttal report, Thompson raises serious concerns as to the

data used in Musey’s average. Thompson states that he went to the same database

that Musey did for his averages and pulled completely different numbers.275 Using

the “corrected” numbers that he pulled from the database, Thompson found that the

long-term growth rate should be 2.02% using Musey’s methodology. Musey did not

address this at trial.

         Thompson also raised concerns about the inclusion of an outlier in Musey’s

calculation of the average of growth rates. Musey included in his average a growth

a 7.00% analyst forecasted growth rate for Verizon’s free cash flows between 2018

and 2022. Thompson points out that, “using a long-term growth rate of 7.0% and a

WACC of 6.8% would result in a negative capitalization rate, and thus an irrational

275
      JX 230, at 45; Tr.II 354:2–355:8 (Thompson).

                                            75
value for the perpetuity value.”276 Removing the 7.00% outlier from the average

results in a long-term growth rate of 2.20% under Musey’s methodology.

         This court is not able to determine which numbers from Musey’s database are

correct. This court, however, finds that the inclusion of the 7.0% growth rate was

not internally consistent with Musey’s proposed valuation and believes that it should

be removed from the calculation of the average long-term growth rate. Thus, this

court adopts Musey’s growth rate, modified to 2.20%.

                2.    Gordon Growth Versus Value Driver

         Although Musey and Thompson agree that a perpetual growth model is the

best method for calculating Jackson’s terminal value, they disagree over which

model to use. Musey used a standard GGM, whereas Thompson suggests a MVD

method. The court used the MVD model for calculating Jackson’s terminal value.

                          a. The Gordon Growth Model
         The GGM is a simple model that calculates the present value of an infinite

stream of cash flows.277 It can be understood as “equivalent to a discounted future

cash flow analysis with certain simplifying assumptions, namely, (a) earnings grow

at a constant rate into perpetuity and (b) all earnings are either distributed to

276
  JX 230, at 42. A company whose growth rate exceeds their WACC in the long-term
would present a riskless arbitrage opportunity that would attract all capital.
277
      PRATT, supra note 207, at 194–95.

                                          76
shareholders or, if retained by the company, reinvested at the discount rate.”278 The

GGM is expressed as:

                                                𝐹𝐶𝐹𝑡 × (1 + 𝑔)
                         𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 =
                                                 𝑊𝐴𝐶𝐶 − 𝑔

Where:

𝐹𝐶𝐹𝑡 = 𝐹𝑟𝑒𝑒 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑟𝑜𝑗𝑒𝑐𝑡𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑

𝑔 = 𝑡ℎ𝑒 𝑙𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒

𝑊𝐴𝐶𝐶 = 𝑡ℎ𝑒 𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑡𝑜 𝑡ℎ𝑒 𝑓𝑖𝑟𝑚

      This GGM presents both positives and negatives as a method for calculating

the terminal value of a company. Beginning with the positive, the GGM is simple

and easy to understand. It is not difficult to take the last period’s cash flows, increase

them by the growth rate, and then calculate a perpetuity based on the discount value

reduced by the growth rate. Further, it is a theoretically sound and widely accepted

means of calculating the terminal value.279

      There are downsides to the GGM. For instance, the GGM is very sensitive to

small changes in the discount rate or growth rate. A slight change in either metric

278
   Z. CHRISTOPHER MERCER, THE INTEGRATED THEORY OF BUSINESS VALUATION 22
(2004).
279
   Crescent/Mach I P’ship, L.P. v. Turner, 2007 WL 2801387, at *14 (Del. Ch. May 2,
2007).

                                           77
will lead to large swings in the terminal value of the company. 280 Moreover, the

GGM does not explicitly deal with the amount of capital investment required to

sustain the selected long term growth rate.281

                          b. The Value Driver Model
            The VDM (or McKinsey formula) is an alternative to the GGM, which makes

explicit the relationship between growth, free cash flow, and invested capital. The

Court of Chancery “has accepted the [VDM] in other cases, sometimes referring to

it as the convergence theory.”282 The VDM is based on the notion that without

investment the firm cannot grow in perpetuity.283 To effectuate this notion, the VDM

280
   The below chart demonstrates how the terminal value of a firm with $10,000 in FCF
can drastically change with small adjustments in the WACC or long-term growth rate for
the firm.
                                                        g
            WACC                 0%                    2%                   4%
             10%               $10,000              $12,500               $16,667
             12%                $8,333              $10,000               $12,500
             14%                $7,143               $8,333               $10,000
Clifford     S.   Ang,   Terminal    Values     in    DCFs,      (Nov.    20,    2019),
http://quickreadbuzz.com/2019/11/20/business-valuation-clifford-ang-terminal-values-in-
dcfs.
281
      Id.
282
      Fir Tree Value Master Fund, LP v. Jarden Corp., 236 A.3d 313, 332 (Del. 2020).
283
    Id. at 333. An expert in Fir Tree stated: “[the VDM] matches the economic
precepts . . . of being more rigorous about quantifying the link between growth and
investment, that growth is not free, and linked to the return on capital.” Id.

                                            78
links the long-term growth rate and the net investment during the terminal period

through the following formula:
                                                           𝑔
                                          𝑁𝑂𝑃𝐴𝑇𝑡+1 × (1 −      )
                    𝐶𝑜𝑛𝑡𝑖𝑛𝑢𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒𝑡 =                  𝑅𝑂𝑁𝐼𝐶
                                                 𝑊𝐴𝐶𝐶 − 𝑔

Where:

𝑁𝑂𝑃𝐴𝑇𝑡+1 = 𝑁𝑒𝑡 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥

𝑔 = 𝑙𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒

𝑅𝑂𝑁𝐼𝐶 = 𝑟𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑛𝑒𝑤 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
  𝑔
      = 𝑖𝑚𝑝𝑙𝑖𝑒𝑑 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑟𝑎𝑡𝑒
𝑅𝑂𝑁𝐼𝐶

𝑊𝐴𝐶𝐶 = 𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑐𝑎𝑝𝑖𝑡𝑎𝑙

          The above formula attempts to model the growth of a company in perpetuity

while accounting for the notion that any growth in perpetuity must be funded by

capital expenditure (i.e., a “plowback” amount, also called the “required

reinvestment rate”). The plowback is the “amount of investment at the terminal

period required to support the projected growth during the terminal period.”284 The

VDM takes net operating profit after tax in the terminal period and reduces it by one

minus the implied reinvestment rate. The implied reinvestment rate is calculated by

284
      Id. at 321 n.33.

                                          79
taking the growth rate and dividing it by the return on new invested capital

(“RONIC”). RONIC measures the return on capital invested during the terminal

period.285 RONIC should be set so that it is consistent with expected competitive

conditions.286 Economic theory suggests that competition will eventually eliminate

abnormal returns. This means that in competitive industries RONIC should equal

WACC.287 If, however, a business has a sustainable competitive advantage provided

by things such as network effect, brands, or patents, it is not appropriate to assume

that RONIC equals WACC because a business with a sustainable competitive

advantage can demand supranormal rents over the long run.288

          An interesting byproduct of the VDM where RONIC equals WACC is that

the growth term falls out of the equation and the VDM can be expressed as a

simplified equation:

285
  TIM KOLLER, MARC GOEDHART & DAVID WESSELS, VALUATION: MEASURING AND
MANAGING THE VALUE OF COMPANIES 250, 260 (6th ed. 2015) [hereinafter “McKinsey”].
286
      Id. at 250.
287
   Id. (“Economic theory suggests that competition will eventually eliminate abnormal
returns, so for companies in competitive industries, set RONIC equal to WACC”).
288
    Id. (“[F]or companies with sustainable competitive advantages (e.g., brands and
patents), you might set RONIC equal to the return the company is forecast [sic] to earn
during later years of the explicit forecast period”); Id. at 262 (“Many financial analysts
routinely assume that the incremental return on capital during the continuing period will
equal the cost of capital . . . . For some businesses, this assumption is too conservative. For
example, both Coca-Cola’s and PepsiCo’s soft-drink businesses earn high returns on
invested capital and their returns are unlikely to fall substantially as they continue to grow,
due to the strength of their brands, high barriers to entry, and limited competition.”).

                                              80
                                                     𝑁𝑂𝑃𝐴𝑇𝑡+1
                             𝐶𝑜𝑛𝑡𝑖𝑛𝑢𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒𝑡 =
                                                      𝑊𝐴𝐶𝐶

Thus, this formulation essentially moots any discussion of the long-term growth

rate.289 The McKinsey textbook states that, “The fact that the growth term has

disappeared from the equation does not mean that the nominal growth in [NOPAT]

is zero. The growth term drops out because new growth adds nothing to value, as

the RONIC associated with growth equals the cost of capital.”290

            As with the GGM, there are benefits and drawbacks of the VDM. A benefit

of the VDM is that it is less sensitive to changes in WACC and g than the GGM. 291

Further, it quantifies the link between growth and required investment.292                 A

drawback of the VDM is its potential to undervalue companies that have sustainable

competitive advantages when RONIC is assumed to be equal to WACC.293 Further,

firms that have yet to reach a steady state due to their fast growth may be

undervalued by the VDM where RONIC is set to equal WACC.294

289
   The long-term growth rate is still relevant in calculating the terminal period’s cashflows
from the projection period’s last period.
290
      McKinsey, supra note 285, at 262.
291
      Ang, supra note 280.
292
   André Thormann & Henrik Foged Rasmussen, The Discounted Cash Flow Terminal
Value Model as an Investment Strategy 39 (May 2019) (Master of Science in Finance and
Accounting Thesis, Copenhagen Business School).
293
      Id.
294
      Id. at 42.

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                       c. The Court’s Selected Terminal Value Calculation

         The Court of Chancery has accepted both GGM and the VDM as valid means

calculating a firm’s terminal value.295 In this case, Thompson’s presentation of the

MVD is more persuasive. This court is convinced of the need to account for the

investment necessary to sustain the long-term growth rate into perpetuity because to

grow, a company must invest. There is no free growth, and, in this case, the court

finds that the terminal value model should make this concept explicit. Further,

Thompson presented an illuminating demonstration of Musey’s model’s implied

return on invested capital (“ROIC”) for his two models. Thompson showed that the

implied ROIC for Musey’s Scenario One and Scenario Two were 192.88% and

227.37% respectively.296 Although numbers like this can likely be created for any

model that calculates terminal value using the GGM, this presentation contributed

to the court’s decision to adopt the VDM in this case.297 Further, the court adopts a

295
   Fir Tree, 236 A.3d, at 332 (“The Court of Chancery has accepted the McKinsey
formula in other cases, sometimes referring to it as a convergence theory.”);
Crescent/Mach I P'ship, L.P. v. Turner, 2007 WL 2801387, at *14 (Del. Ch. May 2,
2007) (“Appraisal actions have used the Gordon Growth method to determine the
appropriate terminal value in a DCF calculation.”).
296
      JX 230, at 50.
297
   In fact, a GGM that assumes depreciation and amortization equal to capital expenditure
and no change in working capital in the final period would imply an infinite return on
              𝑔
capital. lim Where n = net reinvestment/NOPAT; net reinvestment = change in working
           𝑛→0 𝑛

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VDM model that sets RONIC equal to WACC. This is appropriate because Jackson

is a mature, capital-intensive company in a competitive industry.298 Although there

are significant barriers to entry given the limited availability of spectrum licenses,

this court does not find that this creates a competitive moat that would justify

adjusting RONIC to be greater than WACC.

      The first iteration of the model uses Thompson’s VDM model and

Thompson's projections.         Using this model, Jackson’s terminal value is

$161,900,000. In present value terms that is $80,498,000. The second iteration of

the model uses Thompson’s VDM model but incorporates Musey’s wireless revenue

                                                                                       𝑔
capital + working capital - depreciation and amortization; g = perpetuity growth rate; =
                                                                                        𝑛
return on invested capital. The Court of Chancery has adopted the assumption that capital
expenditures will equal depreciation in the final period of a perpetual growth model in the
past. See e.g., Cede III, 2003 WL 23700218, at *2 (“I will calculate fixed capital
investment as 1.8% of the following year's net sales, and depreciation as 1.8% of net
sales.”); Merion Cap. L.P. v. Lender Processing Servs., Inc., 2016 WL 7324170, at *27
(Del. Ch. Dec. 16, 2016) (citing ROBERT W. HOLTHAUSEN & MARK E. ZMIJEWSKI,
CORPORATION VALUATION THEORY, EVIDENCE & PRACTICE 232 (2014)). But see, Gilbert
E. Mathews & Arthur H. Rosenbloom, Delaware’s Unwarranted Assumption That Capex
Should Equal Depreciation in a DCF Model, BUS. VALUATION UPDATE, Aug. 2018, at 1
(criticizing the assumption that capital expenditure should equal depreciation as one that
should only be made if growth and inflation are assumed to be zero and stating that the
valuation community increasingly accepts the notion capital expenditures should exceed
depreciation in the estimation of terminal period cashflow). Thus, this court does not find
that a showing of a high implied ROIC using a GGM model is sufficient to demonstrate
that a GGM should not be used because to do so would place significant constraints on the
use of GGMs.
298
   JX 227, at 54; Thormann & Rasmussen, supra note 292, at 43 (“[T]he RONIC=WACC
model should not provide very attractive or precise valuations for fast-growing companies
that have not yet matured but might only be suitable for stable and mature firms”).

                                            83
projections. In this iteration, Jackson’s terminal value is $259,245,000. In present

value terms that is $128,898,000.

        Putting together the above pieces of the DCF, Jackson’s equity value using

Thompson’s projections is $151,510,000, resulting in a per-share value of $9,679.29.

Using Musey’s revenue projections, Jackson’s equity value is $244,660,000

resulting in a per share value is $15,630.23. Considering all relevant factors, the fair

value of Petitioner’s stock as of the valuation is the weighted average of these two

per share fair values—$11,464.57 per-share.

      E. Costs and Interest

        The appraisal statute permits “[t]he costs of the proceeding [to] be determined

by the Court and taxed upon the parties as the Court deems equitable in the

circumstances.” 8 Del. C. § 262(j). “Customarily, it is the rule of this Court to assess

all costs not specifically allocated by the statute against the surviving corporation,

unless there is a showing of bad faith on the part of the dissenting shareholders.”299

        Ramcell obtained an award of fair value that was higher than the merger

consideration. The litigation was hard-fought, but the Petitioner did not engage in

bad faith conduct. Nor is there any indication that Ramcell incurred excessive costs.

299
    Charlip v. Lear Siegler, Inc., 1985 WL 11565, at *5 (Del. Ch. July 2, 1985); see,
e.g., Owen v. Cannon, 2015 WL 3819204, at *33 (Del. Ch. June 17, 2015) (awarding costs
as a matter of course)).

                                          84
Therefore, any costs to which the petitioner is entitled as the prevailing party will be

paid by Alltel.

          Similarly, the court finds no basis to deviate from the presumptive statutory

interest rate on the appraisal award. Accordingly, Petitioner is awarded “interest

from the effective date of the merger . . . through the date of payment of the judgment

[which] shall be compounded quarterly and shall accrue at 5% over the Federal

Reserve discount rate (including any surcharge) as established from time to time

during the period between the effective date of the merger . . . and the date of

payment of the judgment.”300

III.      CONCLUSION

          The fair value of Jackson stock on the valuation date was $11,464.57 per

share.       Ramcell sought appraisal for 155.4309 shares of Jackson’s stock.

Accordingly, Ramcell is awarded $1,781,948.74.

          Ramcell is awarded its costs and interest pursuant to the appraisal statute.301

          IT IS SO ORDERD

300
      8 Del. C. § 262(h).
301
      8 Del. C. §§ 262(h), (j).

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