Cede & Co. v. Technicolor, Inc.

Facing stagnating earnings, Technicolor Incorporated’s (defendant) chief executive officer (CEO) Morton Kamerman, implemented an extensive plan to expand into the one-hour-photo business. The plan floundered, and Technicolor’s stock price dropped significantly. Ron Perelman, controlling stockholder of MacAndrews & Forbes Group Incorporated (MAF), decided that a takeover of Technicolor would be beneficial to MAF. Negotiations between Kamerman and Perelman commenced. The Technicolor board eventually agreed to MAF’s tender offer of $23 per share. When the tender offer closed on November 30, 1982, MAF was the controlling shareholder of Technicolor. Under Perelman’s direction, MAF crafted new business plans and strategies for Technicolor. Between the closing of the tender offer and the completion of the merger, MAF made efforts to find buyers for Technicolor’s excess assets (e.g., the one-hour-photo division) and anticipated generating $54 million from asset sales. The merger was completed on January 24, 1983. A majority of Technicolor’s shareholders approved the transaction. However, Cede & Co. (Cede) (plaintiff), minority shareholders of Technicolor, dissented from the merger on behalf of the beneficial owner of the shares, Cinerama, Incorporated (plaintiff). Cinerama and Cede instituted an appraisal action in the Delaware Court of Chancery to determine a fair valuation of their shares by the court. The court found that Perelman’s plan to sell Technicolor’s excess assets was not speculative because it was fixed by the date of the merger’s completion. However, the court applied a novel majority-acquiror principle and proximate-cause exception to the appraisal analysis and excluded the value to be realized from the sale of assets planned by Perelman in its determination because the increase in value of Technicolor would not exist but for the merger and the acquiring party. Cinerama and Cede appealed to the Delaware Supreme Court.