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M.G. Bancorporation v. Le Beau
Delaware Supreme Court
737 A.2d 513 (1999)
Southwest Bancorp, Inc. (Southwest) (defendant) owned over 91 percent of the outstanding common stock of M. G. Bancorporation, Inc. (MGB) (defendant), a corporation with a controlling interest in two subsidiaries. MGB merged into Southwest through a short-form merger, which did not require shareholder approval. MGB’s minority shareholders were offered $41 per share as merger consideration. Southwest’s appraiser made the $41 per share valuation by applying a minority discount to the shares. A group of minority shareholders (the plaintiff shareholders) (plaintiffs) rejected the offer and sought to exercise their appraisal rights under 8 Delaware Code § 262. In a separate lawsuit, the Delaware Chancery Court found that Southwest’s appraiser had breached his fiduciary duty to the minority shareholders by improperly applying a minority discount to their shares. In the appraisal proceeding, the plaintiff shareholders presented evidence that their shares were worth $85 per share. The plaintiff shareholders used a combination of the comparative publicly traded approach, the discounted-cash-flow method, and the comparative-acquisitions approach. MGB and Southwest presented evidence that the shares were worth approximately $42 per share using a combination of the discounted-cash-flow method and a capital-markets analysis. In their discounted-cash-flow methods, the plaintiff shareholders applied a control premium to account for the controlling interest that MGB had in its two subsidiaries, and MGB and Southwest did not. The plaintiff shareholders argued that MGB and Southwest’s capital-markets analysis was not generally accepted in the financial industry. The Delaware Chancery Court ordered MGB and Southwest to explain how their new appraisal methods resulted in a price that was extremely similar to their earlier improper method. After hearing testimony, the court concluded that the capital-markets analysis contained an improper minority discount. The court found that the shares were worth $85 each and ordered MGB and Southwest to pay for the shares with 8 percent interest compounded monthly. MGB and Southwest appealed.
Rule of Law
Holding and Reasoning (Holland, J.)
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