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Borruso v. Communications Telesystems International
Delaware Court of Chancery
753 A.2d 451 (1999)
WXL International, Inc. (WXL) was a private corporation. In 1997 WXL merged into its parent corporation, Communications Telesystems International (CTS) (defendant). Before the merger, CTS owned 95 percent of WXL’s shares, and Carl Borruso and William Lee (plaintiffs) owned the remaining 5 percent. After the merger, CTS offered Borruso and Lee $0.02 per share of WXL stock. Borruso and Lee dissented from the merger, seeking to receive fair value for their shares through an appraisal proceeding. CTS and Borruso and Lee all proposed using a comparable-company analysis to value the shares, using the same six comparable companies as references. However, the parties disagreed about the application of a control premium to account for an implicit minority discount created by the comparable-company method. Borruso and Lee argued that a 40 percent control premium should be added during the comparable-company analysis, and CTS argued that a 30 percent control premium should be added at the end of the analysis. Under CTS’s method, the control premium was applied after CTS’s long-term debt had been subtracted from its equity market value. Under Borruso and Lee’s method, the control premium was applied to CTS’s long-term debt, increasing its equity market value. CTS also argued that a marketability discount should be applied to the value of WXL to account for the fact that WXL was a private corporation whose shares were not publicly traded.
Rule of Law
Holding and Reasoning (Lamb, J.)
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