Rapid-American Corp. v. Harris
Delaware Supreme Court
603 A.2d 796 (1992)
Rapid-American Corporation (Rapid) (defendant) was a publicly traded conglomerate with three wholly owned subsidiaries. In 1974 Rapid was transformed into a privately held company through a merger. Rapid’s former shareholders received $28 per share. David Harris (plaintiff) was a Rapid shareholder, owning over 58,000 shares. Harris dissented from the merger, seeking to receive fair value for his shares through an appraisal proceeding. Rapid proposed a fair value of $28 per share based on an analysis of the earnings and dividends of the conglomerate as a whole. Harris proposed a fair value of $73 per share based on a comparable-company analysis of each subsidiary individually. Harris also included a control premium in his valuation of Rapid’s subsidiaries to account for the fact that the subsidiaries were wholly owned by Rapid. The Delaware Court of Chancery found that the fair value of Harris’s shares was $51 per share. In making its determination, the court of chancery adopted Harris’s segmented approach to Rapid’s subsidiaries but did not apply a control premium, believing that the control premium was an improper fair-value adjustment at the shareholder level. Rapid appealed, arguing that the segmented approach to its subsidiaries was improper. Harris cross-appealed, arguing that the court should have applied a control premium to the value of Rapid’s subsidiaries.
Rule of Law
Holding and Reasoning (Moore, J.)
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