M.P.M. Enterprises, Inc. v. Gilbert

M.P.M. Enterprises, Inc. (MPM) (defendant) was a Delaware corporation that designed, manufactured, and distributed machines used to attach electronic components to circuit boards. In March 1995, MPM entered into a merger agreement with Cookson Group, PLC in exchange for an immediate payment of $65 million upon consummation of the merger and contingent earn-out payments of up to an additional $73.635 million if MPM met certain earnings targets over the next three years. Jeffrey Gilbert (plaintiff), a minority owner of 7.273 percent of MPM, dissented from the merger terms and brought an action for judicial appraisal of his shares under Delaware law in the Chancery Court. During the appraisal proceedings, MPM presented expert testimony from William A. Lundquist and Advest, Inc. (collectively, Lundquist). Lundquist conducted both a buy-side and sell-side analysis of discounted cash flow (DCF). In his buy-side analysis, Lundquist compared his valuation to the merger terms and two previous offers for equity interests in MPM from outside third parties. Lundquist considered comparing MPM’s financials to those of similar public companies but found such comparisons unhelpful because MPM was not in a position to go public. In his sell-side analysis, Lundquist found that DCF resulted in a valuation of $90.5 million. Lundquist reduced that figure to $81.7 million after factoring in alleged obligations to nonshareholder employees and transaction costs. Lundquist ultimately opined that $81.7 million was the appropriate valuation. Gilbert presented expert testimony from Kenneth McGraw and Patricof & Co. (collectively, McGraw). McGraw also provided a DCF analysis and an analysis of comparable public companies. After weighting these two methodologies, McGraw arrived at a valuation of $357.1 million. The Chancery Court settled on using a DCF analysis as well. The court disregarded Lundquist’s buy-side analysis because it took into account merger-related synergies that were disallowed in valuations under Delaware law. The court also disregarded McGraw’s analysis of public companies as weak comparisons. The court found that McGraw’s DCF analysis was the most thorough approach and decided to use a modified version of that framework. The court changed the multiplier figure and the discount rate and further found that MPM failed to present sufficient evidence of obligations to nonshareholder employees. In its final judgment, the court found that MPM’s value as of the date of the merger was approximately $156.3 million. On appeal, MPM argued that the Chancery Court should have considered the merger terms, prior offers to purchase MPM, and the obligations owed to nonshareholder employees.