Universal City Studios, Inc. v. Francis I. Dupont & Co.

Universal City Studios, Inc. (UCS) (plaintiff) absorbed Universal Pictures Co. (Universal) in a merger. UCS and Universal’s minority stockholders (defendants) disagreed with an appraiser’s valuation of Universal shares, and the lower court heard arguments regarding how the valuation should be adjusted in applying the Delaware Block Approach. The appraiser selected an earnings multiplier of 16.1 based on the price-earnings ratios of nine other motion picture companies, some of which were more diversified than Universal or produced more award-winning movies than Universal. The lower court nevertheless found that these other companies were comparable to Universal and approved the appraiser’s selected multiplier. The lower court’s opinion included a table showing that Universal’s earnings per share steadily increased during the five-year period preceding the merger. The record showed that during these years, none of the other companies except Disney had a steady growth trend. Within the industry, there was pronounced earnings volatility during these years. Meanwhile, the lower court noted based on the appraiser’s report that Universal expected practically guaranteed substantial future income from leasing its films to television networks. UCS appealed, arguing that the multiplier was impermissibly high and improperly used certain noncomparable companies.