Tri-Continental Corp. v. Battye
Delaware Supreme Court
74 A.2d 71 (1950)
- Written by Heather Whittemore, JD
Facts
General Shareholdings Corporation (General) was a closed-end investment company with leverage. Approximately 60 percent of General’s assets were pledged to outstanding debt, with the remaining 40 percent applicable to its common stock. Because General was a closed-end, leveraged company, any increase or decrease in the stock market would fall on its common stock. Therefore, the market price of its stock did not necessarily reflect the stock’s net asset value. The difference between General’s net asset value and the market price of its stock was its discount rate. In 1948 General merged into Tri-Continental Corporation (defendant). A group of General shareholders (the opposing shareholders) (plaintiffs) dissented from the merger, seeking to receive fair value for their shares of common stock through an appraisal proceeding. The Delaware Court of Chancery appointed an appraiser, who determined that General’s discount rate was 25 percent. In valuing General, the appraiser considered several factors, including General’s nature, leverage, applicable discount rate, net asset value, market value, and favorable tax situation. The appraiser determined that the asset value of General’s stock was $5.15 per share, and added $0.29 to reflect General’s tax situation, concluding that the fairest asset value was $5.44. The appraiser then factored in the 25 percent discount, ultimately concluding that the fair price of the opposing shareholders’ shares was $4.08. The court of chancery adopted the appraiser’s valuation method except for his application of the fairest asset value. The court of chancery held that the fairest asset value should be factored into the valuation independently of the other factors. Giving a 40 percent weight to the fairest asset value and a 60 percent weight to the valuation reached by the appraiser, the court of chancery determined that the fair value of the opposing shareholders’ shares was $4.62. Tri-Continental appealed, arguing that the appraiser’s valuation method was correct.
Rule of Law
Issue
Holding and Reasoning (Wolcott, J.)
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