The short and puzzling life of the "implicit minority discount" in Delaware appraisal law

University of Pennsylvania Law Review

Volumn 156, Issue 1, 2007, Pages 1-61

  Hamermesh, Lawrence A ^a,b   Wachter, Michael L ^c,d  

^a Widener University School of Law   (United States)

^b Widener Institute

^c UNIVERSITY OF PENNSYLVANIA LAW SCHOOL   (United States)

^d UNIVERSITY OF PENNSYLVANIA   (United States)

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[No Author keywords available]

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EID: 38049039312     PISSN: 00419907     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (207)

1. Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983).
2. Lawrence A. Hamermesh & Michael L. Wachter, The Fair Value of Cornfields in Delaware Appraisal Law, 31 J. CORP. L. 119, 121 (2005).
3. Weinberger, 457 A.2d at 713.
4. E.g., Paskill Corp. v. Alcoma Corp., 747 A.2d 549, 553 (Del. 2000) (citing Tri-Continental Corp. v. Battye, 74 A.2d 71, 72 (Del. 1950)). For a list of additional recent cases discussing the concept of "going concern value," see Hamermesh & Wachter, supra note 2, at 132 n.56 (citing cases using the term "going concern value").
5. See discussion infra Part II.A.
6. See Hamermesh & Wachter, supra note 2, at 125 n.30 (citing appraisal cases relying on DCF analysis); see also In re PNB Holding Co. S'holders Litig., No. 28-N, 2006 Del. Ch. LEXIS 158, at *95 (Aug. 18, 2006) (selecting the DCF valuation approach over comparable companies and comparable acquisition methods); Del. Open MRI Radiology Assocs. v. Kessler, 898 A.2d 290, 331 (Del. Ch. 2006) (using the DCF valuation method when both parties' experts did); Andaloro v. PFPC Worldwide, Inc., No. 20336, 2005 Del. Ch. LEXIS 125, at *35 (Aug. 19, 2005) (noting the frequent use of the DCF method in Delaware valuation proceedings).
7. See DEL. CODE ANN. tit. 8, § 262(h) (2006) (excluding from "fair value" any elements of value arising from the merger or consolidation giving rise to the appraisal proceeding).
8. See, e.g., Andaloro, 2005 Del. Ch. LEXIS 125, at *70 n.74 (noting that the going concern value standard requires excluding synergies attributable to business combination); Union Ill. 1995 Inv. Ltd. P'ship v. Union Fin. Group, Ltd., 847 A.2d 340, 356 (Del. Ch. 2003) ("[T] his court must endeavor to exclude from any appraisal award the amount of any value that the selling company's shareholders would receive because a buyer intends to operate the subject company, not as a stand-alone concern, but as a part of a larger enterprise, from which synergistic gains can be extracted.").
9. Cede & Co. v. Technicolor, Inc., 684 A.2d 289, 298 (Del. 1996).
10. Hamermesh & Wachter, supra note 2, at 139-40.
11. See infra Parts I.B-D (discussing the development of the IMD).
12. See, e.g., Agranoff v. Miller, 791 A.2d 880, 897 (Del. Ch. 2001) (finding that the use of public company share price data gives rise to "an equity value that includes an inherent minority trading discount, because the method depends on comparisons to market multiples derived from trading information for minority blocks of the comparable companies").
13. Id.; see also infra Part I.D.
14. See, e.g., Borruso v. Commc'ns Telesys. Int'l, 753 A.2d 451, 458 (Del. Ch. 1999) (applying the IMD to "the comparable company method of analysis").
15. Id.; see also infra Part I.D.
16. See, e.g., Doft & Co. v. Travelocity.com Inc., No. 19734, 2004 Del. Ch. LEXIS 75, at *48 (May 21, 2004) (applying a 30% premium to share value based solely upon recent precedent).
17. See infra Part III.
18. See infra text accompanying notes 131-132 (citing S.P. PRATT ET AL., VALUING A BUSINESS (4th ed. 2000)).
19. See, e.g., Gray v. Cytokine Pharmascis., Inc., No. 17451, 2002 WL 853549, at *11 (Del. Ch. Apr. 25, 2002) (conducting a DCF analysis without adjusting the result to account for an IMD), aff'd, 588 A.2d 255 (Del. 1991); Neal v. Ala. By-Products Corp., No. 8282, 1990 WL 109243, at *7-8 (Del. Ch. Aug. 1, 1990) (same); Cavalier Oil Corp. v. Harnett, No. 7959, 1988 WL 15816, at *29-30 (Del. Ch. 1988) (favoring a DCF analysis that did not include adjustment for an IMD), aff'd, 564 A.2d 1137 (Del. 1989); cf. In re PNB Holding Co. S'holders Litig., 2006 Del. Ch. LEXIS 158, No. 28-N, at *114 (Aug. 18, 2006) (noting without citation that "an exit multiple based on minority trading data from . . . dubious comparable companies" is "a less favored technique that raises questions about whether it embeds a minority discount"). It appears that Vice Chancellor Strine, the author of the PNB Holding opinion, has recognized the inconsistency we point out.
20. Hamermesh & Wachter, supra note 2, at 164-65 (urging application of a more robust conception of future cash flows as a check on controlling shareholder opportunism).
21. Richard Booth has made a similar effort to trace the source of the IMD and shares our disagreement with that aspect of Delaware appraisal law. Richard A. Booth, Minority Discounts and Control Premiums in Appraisal Proceedings, 57 BUS. LAW. 127, 148-51 (2001).
22. Carney and Heimendinger also criticize the IMD (noting that "unfortunately, it is the current operative assumption of the Delaware courts") and suggest that the IMD "is offered without any attempt at a theory," but they conclude that responding to the IMD is therefore "impossible and probably not worthwhile." William J. Carney & Mark Heimendinger, Appraising the Nonexistent: The Delaware Courts' Struggle with Control Premiums, 152 U. PA. L. REV. 845, 863 (2003).
23. Chicago Corp. v. Munds, 172 A. 452, 455 (Del. Ch. 1934).
24. See, e.g., Michael L. Wachter, Takeover Defense when Financial Markets Are (Only) Relatively Efficient, 151 U. PA. L. REV. 787, 798-99 (2003) (discussing studies that indicate that at least temporary mispricing occurs regularly even in well-developed securities markets);
25. Fredrick C. Dunbar & Dana Heller, Fraud on the Market Meets Behavioral Finance, 31 DEL. J. CORP. L. 455 (2006) (same).
26. Munds, 172 A. at 455.
27. Tri-Continental Corp. v. Battye, 74 A.2d 71, 75-76 (Del. 1950).
28. Id. at 73. Benjamin Graham, the well-known expert on security analysis, gave a lecture in early 1947 in which he suggested that General Shareholdings (the firm that merged into Tri-Continental the following year) was a bargain in the market, and that the discount created an opportunity for "intelligent speculation." Benjamin Graham, Lecture No. 10, in THE REDISCOVERED BENJAMIN GRAHAM: SELECTED WRITINGS OF A WALL STREET LEGEND 151 (Janet Lowe ed. 1999), available at http://www.wiley.com/legacy/products/subject/finance/bgraham/benlec10.html. As suggested below, however, the market may have been wiser than Mr. Graham suggested. See infra note 154.
29. Tri-Continental, 74 A.2d at 72.
30. Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1144 (Del. 1989). Professor John Coates explains at length and with considerable force why Tri-Continental and Cavalier are essentially inconsistent, and why the "shareholder level" and "corporate level" discount parlance is largely meaningless. See John C. Coates IV, "Fair Value" As an Avoidable Rule of Corporate Law: Minority Discounts in Conflict Transactions, 147 U. PA. L. REV. 1251, 1272 (1999) (concluding that "if a 'no-discount' rule is to be taken seriously, then a stronger rationale is needed - one that focuses less on the 'level' at which discounts are imposed and more on the working mechanics of the valuation methodologies employed and the sources of discounts, particularly on the existence or absence of control").
31. Tri-Continental, 74 A.2d at 75.
32. Id. at 76.
33. The closed-end fund discount has been cited in support of challenges to the Efficient Capital Markets Hypothesis (ECMH) See, e.g., WILLIAM W. BRATTON, CORPORATE FINANCE: CASES AND MATERIALS 157-58 (5th ed. 2003)
34. (citing J. Bradford De Long et al., Noise Trader Risk in Financial Markets, 98 J. POL. ECON. 703, 728 (1990)). For an explanation suggesting that the ECMH is consistent with observed closed-end fund discounts, however, see infra Part II.F.2.
35. ARTHUR WIESENBERGER, INVESTMENT COMPANIES 152 (1948) ("The 1,602,466 shares outstanding [at December 31, 1947] (held by 2,937 stockholders) are relatively inactive on the New York Curb Exchange. The floating supply is obviously small because Tri-Continental owns 60% . . . ."). Just 39,000 shares of General Shareholdings were traded in 1947, the year before the merger that gave rise to the Tri-Continental case. Id. at 153. In contrast, many other closed-end investment companies had much more active trading in the same time frame. Id. at 119 (Adams Express Co., 232,000 shares), 129 (American Superpower Corp., 865,000 shares), 131 (Adas Corp., 187,000 shares), 141 (Chicago Corp., 706,000 shares), 145 (Equity Corp., 413,000 shares), 169 (Pennroad Corp., 439,000 shares), 177 (Tri-Continental Corp., 647,000 shares), 179 (United Corp., 1,980,000 shares). These annual trading volume figures are dwarfed by the levels reflected in today's equity markets, where the daily trading volume of the New York Stock Exchange's most active stocks is typically in the tens of millions of shares.
36. See, e.g., N.Y. TIMES, Most Active, Gainers and Losers, Feb. 9, 2007, at C8 (reporting trading volumes from approximately 18.7 to 88 million shares for each of the twenty-five most active issues). It is perhaps unsurprising, then, that most of the closed-end fund shares reflected discounts relative to net asset value that were similar in scale to the discount applicable to General Shareholdings. See WIESENBERGER, supra, at 94 (Pennroad/42%, Tri-Continental/38%, Adams Express/35%, Equity Corp./32%, Atlas/25%). Discussing the closed-end fund discount phenomenon, the source of these statistics reports that such discounts "have shown a characteristic tendency to narrow in rising markets and widen in declining markets," but also notes that "Lehman, a leader in the non-leverage field, sold at small premiums in the final months of 1947 and its closing price was the same as its asset value." Id.
37. See, e.g., PRATT ET AL., supra note 18, at 392 ("All other things being equal, an ownership interest in a business is worth more if it is readily marketable."); Coates, supra note 28, at 1262 n.35 (noting the existence of a "marketability discount").
38. See infra Part II.F.2 (discussing Jonathan Berk & Richard Stanton, A Rational Model of the Closed-End Fund Discount (Nat'l Bureau of Econ. Research, Working Paper No. 10412, Apr. 2004), available at http://nber.org/papers/w10412.
39. WIESENBERGER, supra note 32, at 152 ("Tri- Continental owns 60%, Selected Industries 19% and Central States Electric about 6%" of General Shareholdings).
40. See Alexander Khutorsky, Note, Coming in from the Cold: Reforming Shareholders' Appraisal Rights in Freeze-Out Transactions, 1997 COLUM. BUS. L. REV. 133, 160 n.169 ("The theoretical existence of a control premium suggests that [the] price of minority shares held in a company controlled by a majority shareholder should be lower than the price of shares held in the same company but with a more dispersed ownership structure."); Coates, supra note 28, at 1278 ("Ceteris paribus, the presence of a control person will reduce the value of publicly held minority shares . . . ."). Coates wisely cautions, however, that in some instances "[t]he presence of a controlling shareholder may improve managerial monitoring and thus reduce the expropriation value relative to a firm without a controlling shareholder." Id. at 1278 n.87. Coates also cites empirical evidence in support of his general assertion. Id. at 1280 n.93
41. (citing Roger C. Graham, Jr. & Craig E. Lefanowicz, Valuation of Companies for the Estate and Gift Tax: Evidence of Minority Interest Discounts, 9 ADVANCES TAX'N 77 (1997)).
42. See infra Part II.F.2. Of course, as discussed previously, we would agree that "fair value" should not be burdened by agency costs that stem from demonstrable past or anticipated breaches of fiduciary duty.
43. See, e.g., Associated Imports, Inc. v. ASG Indus., No. 5953, 1984 Del. Ch. LEXIS 483, *44 (June 20, 1984) ("As to an appropriate price/earnings rating, the leading companies in the industry trade in a five to seven range. Given Fourco's modest share of the market and its relatively brief period of success, I find that a multiple of five is appropriate to capitalize annualized earnings."); Francis I. duPont & Co. v. Universal City Studios, Inc., 312 A.2d 344, 348 (Del. Ch. 1973) (selecting an earnings multiple derived from "the average price earnings ratio of nine motion picture companies"), aff'd, 334 A.2d 216 (Del. 1975); David J. Greene & Co. v. Dunhill Int'l, Inc., 249 A.2d 427, 433-34 (Del. Ch. 1968) (referring to price earnings ratios for comparable companies); Felder v. Anderson, Clayton & Co., 159 A.2d 278, 285 (Del. Ch. 1960) (stating that the multiple was "obtained by averaging the earnings-price ratios of representative stocks for the five year period before the merger").
44. 488 A.2d 858, 876 (Del. 1985). To be fair, the opinion recites that "several of the directors testified that, as a general rule, most chief executives think that the market undervalues their companies' stock." Id. This recitation does not disclose, however, whether the subjectively perceived undervaluation was relative to the present value of the future free cash flows of the firm, or simply what the firm could be sold for as a whole to a third party. It has been suggested in any event that the directors' judgment suffered from "cognitive bias [and therefore was] entitled to little or no credence." Carney & Heimendinger, supra note 21, at 854 n.48.
45. Van Gorkom, 488 A.2d at 875 ("[I]n the absence of other sound valuation information, the fact of a premium alone does not provide an adequate basis upon which to assess the fairness of an offering price.").
46. See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del. 1986) (holding that when a company's sale is inevitable, the directors' obligation is to sell to the highest bidder).
47. Indeed, Van Gorkom's terse remand instruction (directing an award of damages "to the extent that the fair value of Trans Union exceeds $55 per share [the market price]," Van Gorkom, 488 A.2d at 893) only reinforces the notion that "fair value" generally exceeds share price. See Lawrence A. Hamermesh, Why I Do Not Teach Van Gorkom, 34 GA. L. REV. 477, 483, 488-89 (2000) (suggesting that this damages formula relying on "fair value" does not accord with Revlon's subsequendy expressed requirement of achieving the highest currently available third-party sale value - a value that, unlike "fair value," may include synergies arising from the combination).
48. 564 A.2d 1137 (Del. 1989).
49. Id. at 1145. The court also stated that "to fail to accord to a minority shareholder the full proportionate value of his shares imposes a penalty for lack of control, and unfairly enriches the majority shareholders." Id. (emphasis added). To the extent, therefore, that Cavalier expresses concern about a "penalty for lack of control," it does so only in the limited context where "majority shareholders" are squeezing out a "minority shareholder," and it does not hold that share market prices always penalize a non-controlling holder.
50. Cavalier Oil Corp. v. Harnett, Nos. 7959, 1988 WL 15816, at *22-23 (Del. Ch. Feb. 2, 1988), aff'd, 564 A.2d 1137 (Del. 1989).
51. See infra Part II.C.
52. 611 A.2d 485 (Del. Ch. 1991).
53. 603 A.2d 796 (Del. 1992).
54. Id. at 806 (emphasis omitted); see also M.G. Bancorp., Inc. v. Le Beau, 737 A.2d 513, 524 (Del. 1999) ("[I]n valuing a holding company in a statutory appraisal proceeding, pursuant to Section 262, it is appropriate to include a control premium for majority ownership of a subsidiary as an element of the holding company's fair value of the majority-owned subsidiaries."). The trial court in Rapid addressed a valuation in which Rapid's operating subsidiaries were appraised using a comparable company analysis based on share market multiples, and insisted upon the addition of a "control premium" that was derived from observed premiums in acquisitions of companies comparable to Rapid's subsidiaries. Harris v. Rapid-Am. Corp., No. 6462, 1990 Del. Ch. LEXIS 166, at *36 (Oct. 2, 1990), aff'd in part and rev'd in part, 603 A.2d 796 (Del. 1992) ("[P]etitioners arrived at a control premium of 45% after looking at control premiums paid for companies during 1980.").
55. Rapid, 603 A.2d at 806.
56. See Hamermesh & Wachter, supra note 2, at 152 n.128 (citing Delaware cases rejecting valuation based on hypothetical third-party sale value).
57. Rapid, 603 A.2d at 799-800.
58. At least one attempt to limit Rapid to its facts failed, however. See Le Beau v. M.G. Bancorp., Inc., No. 13413, 1998 Del. Ch. LEXIS 9, at *38-39 (Jan. 29, 1998) (rejecting the argument that Rapid's addition of a control premium was limited to situations involving subsidiaries in different lines of business), aff'd in part, 737 A.2d 513 (Del. 1999).
59. Rapid, 603 A.2d at 806.
60. 611 A.2d 485, 487-88, 494 (Del. Ch. 1991).
61. Id. at 498.
62. Id. at 494.
63. Id. Presumably, a "minority" share requires a higher return and, therefore, implies a higher cost of equity and, accordingly, a higher discount rate, thus tending to reduce the valuation derived from the DCF approach.
64. Id.
65. Id.
66. Id.
67. No. 10,054, 1992 Del. Ch. LEXIS 100, at *14 (May 1, 1992). Professor Hamermesh represented the petitioner in this litigation, and enjoys the dubious privilege of criticizing the argument he made in that case. The fact that the argument was unsuccessful, at least in that case, is of some comfort.
68. Id. at *15.
69. Id. at *16-17.
70. Id. at *17.
71. No. 11,265, 1992 Del. Ch. LEXIS 252, at *4 (Dec. 7, 1992). Once again, it must be noted that Professor Hamermesh acted as counsel for the petitioner in this case. In this case, the petitioner did not so much advocate the IMD as omit, in his self-interest, to oppose the respondent's expert's use of it.
72. Earnings before depreciation, interest, and taxes.
73. Id. at *5. On the other hand, Danyluk also applied a 40% discount for lack of marketability, a discount that the Vice Chancellor rejected as inconsistent with Delaware law. Id. at *6, *14-15.
74. Id. at *10.
75. No. 1107, 1995 Del. Ch. LEXIS 75, at *2-3 (June 15, 1995). The use of a court-appointed expert, while a well-known possibility, has been an unusual step in Delaware appraisal proceedings, suggesting that the courts have not found it to be of substantial assistance. See Cede & Co. v. Technicolor, Inc., 758 A.2d 485, 496-97 (Del. 2000) (rejecting trial court appointment of valuation expert to conduct "quasi-judicial functions").
76. Kleinwort, 1995 Del. Ch. LEXIS 75, at *6.
77. Id. at *8.
78. Id. at * 11-12.
79. Id. at *12.
80. Id. at *8.
81. Id. at *8-9.
82. M. at *10-11.
83. Id. at *11.
84. Id. at *12. The opinion does not recite any analysis or empirical support underlying this estimate.
85. Id.
86. Salomon Bros. v. Interstate Bakeries Corp., No. 10,054, 1992 Del. Ch. LEXIS 100, at *17 (May 1, 1992).
87. Kleinwort Benson Ltd. v. Silgan Corp., No. 1107, 1995 Del. Ch. LEXIS 75, at *12 (June 15, 1995).
88. Id.
89. M.G. Bancorp., Inc. v. LeBeau, 737 A.2d 513, 522 n.26 (Del. 1999) (referring to S.P. PRATT ET AL., VALUING A BUSINESS 194-95, 210 (3d ed. 1996)).
90. We explain below that this reading of Pratt is flawed, and that the so-called "minority" valuation approach described by Pratt et al. includes the kind of DCF analysis that the Delaware courts routinely and appropriately accept as a basis for determining "fair value." See infra Part III.B.
91. No. 13414, 1998 Del. Ch. LEXIS 9, at *11 (Jan. 29, 1998), aff'd, 737 A.2d 513 (Del. 1999).
92. Id. at *25.
93. Id. The only pieces of "valuation literature" cited by the court were the Pratt treatise and Z. CHRISTOPHER MERCER, VALUING FINANCIAL INSTITUTIONS 198-200, 207-41 (1992). As explained below, neither of these authorities, properly understood, asserts the existence of an IMD. See infra Part III.B.
94. M.G. Bancorp., 737 A.2d at 523. Citing its earlier opinion in Rapid, the Supreme Court similarly upheld the Vice Chancellor's acceptance of an analysis of the subsidiaries' value that was based on premiums paid in acquisitions of comparable companies. Id. at 525.
95. See, e.g., Borruso v. Commc'ns Telesys. Int'l, 753 A.2d 451, 458 (Del. Ch. 1999) ("[T]he comparable company method of analysis produces an equity valuation that inherently reflects a minority discount, as the data used for purposes of comparison is all derived from minority trading values of the comparable companies. Because that value is not fully reflective of the intrinsic worth of the corporation on a going concern basis, this court has applied an explicit control premium in calculating the fair value of the equity in an appraisal proceeding. It would seem to me to be particularly appropriate to do so where, as is true here, the comparable company method is the only method available to me to value the shares in question." (citation omitted)); Bomarko, Inc. v. Int'l Telecharge, Inc., 794 A.2d 1161, 1185 (Del. Ch. 1999) (accepting a comparable company analysis to which a 30% premium had been applied in order "to account for the minority discount inherent in the comparable companies analysis"); Agranoff v. Miller, 791 A.2d 880, 892-93, 897 (Del. Ch. 2001) ("The comparable companies analysis generates an equity value that includes an inherent minority trading discount, because the method depends on comparisons to market multiples derived from trading information for minority blocks of the comparable companies.").
96. In Borruso, the court recites that "[t]here is no dispute between [the parties] that the comparable company method produces a minority valuation of the shares subject to appraisal, as has been recognized in decisions of this court." 753 A.2d at 457. In Bomarko, the defendants did "not dispute that the value derived by comparable companies method of analysis reflects an imbedded minority discount." 794 A.2d at 1186. In Agranoff, the expert witness for the party arguing for a low "fair value" appears to have challenged only the size of the IMD adjustment, and not the proposition that such an adjustment was appropriate. 791 A.2d at 899-900.
97. 791 A.2d at 893.
98. That IMD adjustment was calculated by means of what the Vice Chancellor candidly described as "a necessarily rough approach that simply involves shaving some percentage off the top of the available information about control premiums paid." Id. at 899.
99. No. 19734, 2004 Del. Ch. LEXIS 75 (May 21, 2004).
100. The petitioners' expert was William H. Purcell, an investment banker with over thirty-five years of experience in significant mergers and acquisitions. Id. at *14. The respondent presented the testimony of Professor Paul A. Gompers of the Harvard Business School. Id. at *15. Salomon Smith Barney, Inc., which had counseled the special board committee involved in the transaction, was also a source of valuation expertise. Id. at *12.
101. Id. at *32.
102. Id. at *46.
103. Id. (citing Agranoff v. Miller, 791 A.2d 880, 892 (Del. Ch. 2001)). In 2003, however, the same Vice Chancellor relied in part on a comparable companies market multiple analysis but declined to impose an upward IMD adjustment, noting that "[t]he petitioner's expert made no such adjustment because he assumed it would be roughly offset by a marketability discount related to [the firm's] status as a privately held company." Taylor v. Am. Specialty Retailing Group, Inc., No. 19239, 2003 Del. Ch. LEXIS 75, at *23 n.24 (July 25, 2003).
104. Travelocity.com, 2004 Del. Ch. LEXIS 75, at *46.
105. Id. at *46.47 (citing Agranoff, 791 A.2d at 887; Bomarko v. Int'l Telecharge, Inc., 794 A.2d 1161, 1186 n.11 (Del. Ch. 1999), aff'd, 766 A.2d 437 (Del. 2000); Borruso v. Commc'ns Telesys. Int'l, 753 A.2d 451, 459 (Del. Ch. 1999)).
106. See, e.g., Andaloro v. PFPC Worldwide, Inc., Nos. 20336, 2005 Del. Ch. LEXIS 125, at *65, *7041 (Aug. 19, 2005) (applying a 30% upward adjustment in order "[t]o honor the Supreme Court's teaching that plaintiffs should receive their pro rata share of the entity as a going concern, this court's decisions adjust minority trading multiples to account for the implied discount, in order to accurately arrive at a fair value of the entire entity"); Dobler v. Montgomery Cellular Holding Co., No. 19211, 2004 Del. Ch. LEXIS 139, at *65-66 (Oct. 4, 2004) (accepting a comparable company valuation to which a "control premium" had been added), aff'd in part, rev'd in part on other grnunds, 880 A.2d 206 (Del. 2005); Lane v. Cancer Treatment Ctrs. of Am., Inc., No. 12207, 2004 Del. Ch. LEXIS 108 at *129-30 (July 30, 2004) ("Comparable company analyis . . . suffers from an inherent minority discount . . . [and] a "premium must be added to adjust for the minority discount."). Interestingly, in Andaloro the court thought it would be "appropriate" to reduce the 38% adjustment proffered by defendants' expert witness to 30% because the 38% figure "did not seek to exclude any portion of the average premia . . . to account for the sharing of synergies by the buyer with the seller." 2005 Del. Ch. LEXIS 125, at *69, *70 n.74. Also, the Vice Chancellor did acknowledge that "[t]here is some academic dispute about whether all companies' shares trade at a discounted level." Id. at *65 n.69.
107. Dobler, 2004 Del. Ch. LEXIS 139, at *72 ("A DCF is a final valuation that does not need any additional correction, such as a control premium."); Lane, 2004 Del. Ch. LEXIS 108, at *117.18 & nn.159-60 (citing In re Radiology Assocs. Inc. Litig., 611 A.2d 485, 491 (Del. Ch. 1991) and SHANNON PRATT, BUSINESS VALUATION DISCOUNTS AND PREMIUMS 30 (2001)) ("The streams of income here do not require any adjustment for an impermissible minority discount."). According to Pratt, "There is little or no difference in the rate of return that most investors require for investing in a public, freely tradable minority interest versus a controlling interest." PRATT, supra, at 30.
108. E.g., In re U.S. Cellular Operating Co., No. 18696, 2005 Del. Ch. LEXIS 1, at *67 (Jan. 6, 2005) (selecting "a terminal value multiple of 10 times EBITDA"); Gray v. Cytokine Pharmascis., Inc., No. 17451, 2002 WL 853549, at *11 (Del. Ch. Apr. 25, 2002) ("[A] revenue multiple of 4.0x should be applied to PSI's projected revenues in 2008 to determine most accurately the Company's terminal value."); Neal v. Ala. By-products Corp., No. 8282, 1990 WL 109243, at *7 (Del. Ch. Aug. 1, 1990) (setting the terminal value to be "equal to a price earnings multiple of 14 times annual earnings . . . plus a premium for 100% ownership"), aff'd, 588 A.2d 255 (Del. 1991); Cavalier Oil Co. v. Harnett, 1988 WL 15816, at *21 (Del. Ch. 1988) (multiplying the company's average yearly earnings plus the actual earnings in the year before merger by 12 to determine the terminal value), aff'd, 564 A.2d 1137 (Del. 1988). In fairness, it should be pointed out that Vice Chancellor Strine anticipated this inconsistency. See In re PNB Holding Co. S'holders Litig., No. 28-N, 2006 Del. Ch. LEXIS 158, at *114-15 (Aug. 18, 2006) (characterizing the exit multiple approach as "a less favored technique that raises questions about whether it embeds a minority discount").
109. Lane, 2004 Del. Ch. LEXIS 108, at *118 n.160.
110. ASWATH DAMODARAN, DAMODARAN ON VALUATION 193 (2d ed. 2006).
111. Id. at 31.
112. There are many interesting problems involved in the determination of the cost of capital, but these are beyond the scope of this Article.
113. See, e.g., Henke v. Trilithic Inc., No. 13155, 2005 Del. Ch. LEXIS 170, at *20 (Oct. 28, 2005); ONTI, Inc. v. Integra Bank, 751 A.2d 904, 917 (Del. Ch. 1999); RICHARD A. BREALEY ET AL., PRINCIPLES OF CORPORATE FINANCE 508-12 (8th ed. 2006).
114. See, e.g., Cede & Co. v. Technicolor Inc., No. 7129, 2003 Del. Ch. LEXIS 146, at *25 (Dec. 31, 2003) (quoting Agranoff v. Miller, 791 A.2d 880, 892 (Del. Ch. 2001)), aff'd in part, rev'd in part on other grounds, 875 A.2d 602 (Del. 2005).
115. Sometimes the respondents in valuation proceedings, seeking a lower result, challenge the application of what they consider to be inapplicable or unduly optimistic forecasts. E.g., Prescott Group Small Cap, L.P. v. Coleman Co., No. 17802, 2004 Del. Ch. LEXIS 131, at *22-39 (Sept. 8, 2004).
116. DAMODARAN, supra note 105, at 158.
117. The Delaware courts regularly describe this method of estimating terminal value as the "exit multiple" approach. E.g., Gholl v. eMachines, Inc., No. 19444, 2004 Del. Ch. LEXIS 171, at *50 (Nov. 24, 2004).
118. E or to provide a range.
119. Damodaran states that the relative valuation method, which relies on a comparable company analysis, is inferior to the use of what we call the pure DCF method because of the difficulties in determining comparables. DAMODARAN, supra note 105, at 231.
120. Future growth is notoriously difficult to forecast. In particular, to forecast g, the expert needs to estimate the company's future marginal return on equity, which can be highly problematic.
121. See, e.g., Andaloro v. PFPC Worldwide, No. 20336, 2005 Del. Ch. LEXIS 125, at *64 (Aug. 19, 2005) ("The comparable companies method of valuing the company's equity involves several steps including: finding comparable, publicly-traded companies that have reviewable financial information; calculating the ratio between the trading price of the stocks of each of those companies and some recognized measure reflecting their income such as revenue, EBIT or EBITDA; correcting these derived ratios to account for differences, such as capital structure, between the public companies and the target company being valued; and finally applying the average multiple to the relevant income measurement of the target company, here PFPC. The methodology rests on the reasonable assumption that, after making the appropriate adjustments, the subject company would tend to have its free cash flows valued at the same multiples as its industry peers."); Agranoff v. Miller, 791 A.2d 880, 892 (Del. Ch. 2001); Bomarko, Inc. v. Int'l Telecharge, Inc., 794 A.2d 1161, 1186 n.11 (Del. Ch. 1999) (accepting a comparable companies analysis even when the comparable companies are different in size and scope provided that other chosen multiples will correct for the differences).
122. When comparable companies analysis is used in appraisal proceedings, the discount rate is effectively selected through the choice of a market multiple; the discount rate implied in these applications of the comparable companies analysis is the reciprocal of the selected market multiple. PRATT ET AL., supra note 18, at 244 ("Multiples of economic income variables (price/earnings multiples, price/cash flow multiples, and so on) are the reciprocals of the capitalization rates applicable to those variables.").
123. Brealey et. al. discuss the use of multiples as a good method for checking the validity of what we call the pure DCF approach in calculating the horizon value of the firm. BREALEY ET AL., supra note 108, at 511. Damodaran refers to the use of multiples as "relative valuation." See DAMODARAN, supra note 105, at 231 ("In relative valuation, we value assets based on how similar assets are priced. We begin . . . by noting that most valuations in practice are relative valuation.").
124. See BREALEY ET AL., supra note 108, at 61-65. Ross, Westerfield, andjaffe define the value of common stocks in an identical fashion. STEPHEN A. ROSS ET AL., CORPORATE FINANCE 109 (6th ed. 2002). These textbooks define the value of a stock as the discounted value of dividends and elsewhere define the value of the firm as the discounted value of future FCFs. As Damodaran points out, these values measure the same thing: cash flows to equity holders. DAMODARAN, supra note 105, at 175. Damodaran discusses scenarios in which dividend discounting and free cash flow discounting could lead to different valuations, namely when free cash flows are neither paid as dividends nor reinvested in the firm. Id. at 188. However, these scenarios may represent a form of agency cost, which, as discussed in detail below, is appropriately reflected in (a reduced) going concern value. See infra Part II.C. To the extent that these scenarios involve breaches of fiduciary duty, it can be argued that they should be addressed by an offsetting upward adjustment in determining fair value. See infra Part IV. In any event, Damodaran notes that his analysis switches freely between per-share and aggregate valuations. See DAMODARAN, supra note 105, at 191 (discussing the differences
125. The term "third-party sale value" is reserved for those transactions where the target and the bidder are unrelated and the negotiations over the transaction are conducted at arm's length without conflict of interest.
126. See infra Part II.D.
127. Hamermesh & Wachter, supra note 2, at 126 (citing BREALEY ET AL., supra note 106, at 16).
128. ROBERT S. PINDYCK & DANIEL L. RUBINFELD, MICROECONOMICS 204 (5th ed. 2001).
129. In cases involving a third-party purchaser, the negotiations involving the sale of the company typically result in the synergistic gains being shared by the buyer and the seller. See TIM KOLLER ET AL., VALUATION 435 (4th ed. 2005). Consequently, shareholders in a merger or asset sale may actually achieve a premium for their stock. However, they are not required by law to be paid the premium. See, e.g., Abraham v. Emerson Radio Corp., 901 A.2d 751, 761-62 (Del. Ch. 2006) ("[P]ure control premium envy is not a cognizable claim for a minority stockholder under Delaware law.") (citing Hollinger Int'l, Inc. v. Black, 844 A.2d 1022, 1087 (Del. Ch. 2004), aff'd, 872 A.2d 559 (Del. 2005)); Mendel v. Carroll, 651 A.2d 297, 306-07 (Del. Ch. 1994) (noting that, even though a third party offered a higher price per share than that offered by a controlling shareholder, the directors were not obligated to accept the higher price if the controller's offer was fair);
130. Ronald J. Gilson & Jeffrey N. Gordon, Doctrines and Markets: Controlling Controlling Shareholders, 152 U. PA. L. REV. 785, 793-96 (2003) (discussing the general corporate law standard that "a controlling shareholder can sell control at a premium that is not shared with non-controlling shareholders").
131. It is similarly counterproductive to force a controller to pay a third-party sale price when exercising the right of control in purchasing the remaining shares. In particular, there is no reason to assume that such transactions are being driven by the controller's idea that the corporation's assets sell at a discount to their true value. Not every corporation is a logical acquisition candidate.
132. See ADOLF A. BERLE, JR. & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 119 (1932) (pointing out that "having interests in an enterprise, . . . having power over it, and . . . acting with respect to it" are distinct functions that individuals may fulfill to varying degrees).
133. Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. FIN. ECON. 305, 313 (1976).
134. The agency costs are costs above the market prices required to hire comparably skilled managers. The salary and benefits paid to managers for their services as set by the labor market are regular costs and are not agency costs. Those labor market costs exist whether the firm is publicly or privately owned.
135. See Hamermesh & Wachter, supra note 2, at 145-48, 158 (arguing that "minority shareholders have a right to 'fair value' that incorporates not only current assets but also future reinvestment opportunities"); see also infra Part IV (explaining why the appraisal remedy is superior to the IMD remedy for addressing breach of fiduciary duty).
136. See supra Part II.B (identifying synergies as a component of the sale price in an arm's-length transaction).
137. PRATT ET AL., supra note 18, at 349. We follow Pratt et al.'s treatment of the benefits of control because of the Delaware courts' regular reliance on their treatise. For recent examples of the Delaware courts' reliance on Pratt et al.'s works in their valuation analyses, see In re PNB Holding Co. S'holders Litig., No. 28-N, 2006 Del. Ch. LEXIS 158, at *75 n.105 (Aug. 18, 2006); Gesoff v. IIC Indus., 902 A.2d 1130, 1158 n.159 (Del. Ch. 2006); Del. Open MRI Radiology Assocs. v. Kessler, 898 A.2d 290, 337 n.125, 339 n.130, 340 nn.133 & 136 (Del. Ch. 2006); Henke v. Trilithic, Inc., No. 13155, 2005 Del. Ch. LEXIS 170, at *41 n.110 (Oct. 28, 2005); Andaloro v. PFPC Worldwide, Inc., No. 20336, 2005 Del. Ch. LEXIS 125, at *65 n.68 (Aug. 19, 2005); NBC Universal, Inc. v. Paxson Commc'ns Corp., No. 650-N, 2005 Del. Ch. LEXIS 56, at *28 n.33 (Apr. 29, 2005).
138. PRATT ET AL., supra note 18, at 349.
139. See Hamermesh & Wachter, supra note 2, at 145-48 (arguing that even minority shareholders will be able to recover a proportionate share of reasonable expected benefits after a squeeze-out).
140. See id. at 165 (including the value of unexploited business opportunities in "fair value").
141. PRATT ET AL., supra note 18, at 347.
142. See infra Part II.F.
143. PRATT ET AL., supra note 18, at 347.
144. See, e.g., Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1144 (Del. 1989) (declaring that in determining the dissenting shareholder's proportionate interest in the value of the going concern, "the Court of Chancery is not required to apply further weighting factors at the shareholder level, such as discounts to minority shares for asserted lack of marketability").
145. See infra Part III.B.
146. The quoted language is from Pratt et al.'s treatment of the subject in the third edition of their treatise on business valuation, where they discuss whether a DCF analysis produces a "control value" or a "minority value." PRATT ET AL., supra note 84, at 194-95.
147. DAMODARAN, supra note 105, at 457.
148. Aswath Damodaran, The Value of Control: Implications for Control Premia, Minority Discounts and Voting Share Differentials 2 (unpublished manuscript, available at http://pages.stern.nyu.edu/~adamodar/pdfiles/papers/ controlvalue.pdf).
149. MERCER, supra note 88, at 199.
150. For a discussion of the haphazard development of the IMD in Delaware appraisal law, see supra Part I.
151. DAMODARAN, supra note 105, at 508.
152. This assertion is settled as a matter of Delaware law. See, e.g., Cavalier Oil Co. v. Harnett, 564 A.2d 1137, 1145 (Del. 1989) ("The application of a discount to a minority shareholder is contrary to the requirement that the company be viewed as a 'going concern.'"). In commenting on this paper, however, several finance professors took a position less favorable to minority shareholders: specifically, they not only challenged the claimed existence of an "implicit minority discount," but made the further (and not inherendy implausible) claim that shares purchased at a discounted price due to a lack of marketability should be valued in a manner that gives effect to a discount for lack of marketability, and that the contrary Delaware law standard gives minority shareholders a windfall.
153. See Tri-Continental Corp. v. Battye, 74 A.2d 71 (Del. 1950).
154. Id. at 73.
155. Edward B. Rock & Michael L. Wachter, Waiting for the Omelet to Set: Match-Specific Assets and Minority Oppression in Close Corporations, 24 J. CORP. L. 913, 921 (1999).
156. See supra Part I.A (arguing that the Tri-Continental court's reasoning in considering the discount for a closed-end fund does not necessarily apply to all corporations). We do not want to push this theory too far because the court's explanation is incoherent. On the one hand, the court emphasized that the problem facing Tri-Continental's shareholders is that they had to sell their shares in the market in order to be cashed out. Tri-Continental, 74 A.2d at 76. At the same time, the court did not appear to believe that the securities of stock, preferred stock, and bonds held in the portfolio suffer from the same problem. Id. The court offered another explanation for the discount as well, with the explanation turning on the leverage involved in closed-end funds. Id. But here again, what is true for Tri-Continental is true for General Electric.
157. See Berk & Stanton, supra note 34, at 3 ("If a fund owns a lot of restricted stock or other illiquid assets, which do not trade freely, its NAV may not accurately reflect its true value, in which case the fact that it does not trade at its NAV is not particularly surprising."). Tri-Continental appears to be such a case. Tri-Continental's portfolio consisted of bonds and preferred stock that equaled 60.8% of the portfolio; the remaining 39.2% was in common stock. Tri-Continental, 74 A.2d at 73.
158. See Berk & Stanton, supra note 34, at 3 ("[H]oldings of restricted stock do have some explanatory power for discounts, but these holdings are small or zero for most funds, so cannot fully explain the 'anomaly.'"). Moreover, while the securities held by Tri-Continental may have been illiquid, the assets of most operating companies are even more illiquid. Assets of operating companies are heavily plant- and equipment-related, and these assets rarely trade freely in secondary markets.
159. Id. at 2.
160. E. Presumably, the respondent is the closed-end fund itself, which is engaged in a going-private transaction. In that case, the respondent's expert will do what respondent experts normally do, which is to paint a bleak picture of the future return of the fund, and the petitioner's expert will argue the opposite. The difference from the traditional case is that the evidence will be based on the fund's market price, which presumably incorporates the market's assessment of the costs and benefits of the fund manager.
161. It is certainly conceivable, on the other hand, that a firm that is unusually well managed by a controlling shareholder may have minority shares that trade at a price greater than what the share price would be if the firm's ownership were widely dispersed and subject to control by less capable management. Indeed, one suspects that this may be the case with respect to Berkshire Hathaway under Warren Buffett's management. While not asserting that Berkshire Hathaway's stock has been overvalued in relation to its intrinsic value (which he defines as "the discounted value of the cash that can be taken out of a business during its remaining life," BERKSHIRE HATHAWAY INC., ANNUAL REPORT 77 (2006), available at http://www.berkshirehathaway.com/2005am/2005ar.pdf), Warren Buffett has insisted that "fairness prevails when market price and intrinsic value are in sync" and that managers can help bring about this result through their policies and public communications.
162. Letter from Warren Buffett, Chairman, Berkshire Hadiaway Inc., to Shareholders of the Corporation (Feb. 28, 1997), available at http://www.berkshirehathaway.com/letters/1996.html. At the very least, then, Buffett clearly rejects the IMD premise of inherent undervaluation in share market prices.
163. See generally ANDREI SHLEIFER, INEFFICIENT MARKETS: AN INTRODUCTION TO BEHAVIORAL FINANCE 112-53 (2000) (surveying psychological and institutional evidence that investors do not always behave rationally).
164. See generally Rapid-Am. Corp. v. Harris, 603 A.2d 796, 801, 804-06 (Del. 1992) (discussing the distinction between value at the corporate and shareholder levels); Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1144-45 (Del. 1989) (noting that Delaware case law allows discounts or premiums at the corporate level, but not at the shareholder level).
165. As required by Weinberger v. UOP, Inc., 457 A.2d 701, 712 (Del. 1983).
166. See supra notes 119, 155, and accompanying text.
167. See supra note 6 and accompanying text.
168. E. This is the rationale behind the traditional practice of using a number of alternative methods and reasonable assumptions to create a range for the company's going concern value. See BREALEY ET AL., supra note 108, at 253-56 (describing the Monte Carlo simulation method, which produces a range of values to accommodate forecasting error).
169. See supra Part II.C (discussing the financial theory of agency costs).
170. See, e.g., Del. Open MRI Radiology Assocs. v. Kessler, 898 A.2d 290, 338-39 (Del. Ch. 2006) (discussing the role of CAPM and its tensions with the "build-up model" in estimating WACC); Lane v. Cancer Treatment Ctrs. of Am., No. 12207, 2004 Del. Ch. LEXIS 108, at *113-14 (July 30, 2004) (describing the CAPM method of deriving cost of equity in estimating WACC).
171. See, e.g., Gesoff v. IIC Indus., 902 A.2d 1130, 1159 (Del. Ch. 2006) ("The small-size premium, although somewhat controversial, is a generally accepted premise of both financial analyses and of this court's valuation opinions."); Del. Open MRI, 898 A.2d at 338 n.129 (supporting the use of a premium on small-size stocks, despite the "great debate" over whether it is appropriate); ONTI, Inc. v. Integra Bank, 751 A.2d 904, 920 (Del. Ch. 1999) ("This court has traditionally recognized the existence of a small stock premium in appraisal matters.").
172. Union Ill. 1995 Inv. Ltd. P'ship v. Union Fin. Group, Ltd., 847 A.2d 340, 362-63 (Del. Ch. 2003) (applying the three-factor Fama and French CAPM model because it "helps capture the risk associated with possible insolvency and other problems in highly leveraged firms").
173. See, e.g., Andaloro v. PFPC Worldwide, Inc., No. 20336, 2005 Del. Ch. LEXIS 125, at *58 (Aug. 19, 2005).
174. See supra Part I.D. Put mildly, the IMD is thus in tension with the observation by the Delaware Supreme Court that "a well-informed, liquid trading market will provide a measure of fair value superior to any estimate the court could impose." Applebaum v. Avaya, Inc., 812 A.2d 880, 890 (Del. 2002).
175. See supra notes 118-119; see also Carney & Heimendinger, supra note 21, at 857-58 ("The basic conclusion of the Efficient Capital Markets Hypothesis (ECMH) is that market values of companies' shares traded in competitive and open markets are unbiased estimates of the value of the equity of such firms.").
176. See supra Part I.
177. See supra Part I.
178. Coates, supra note 28, at 1265 & n.46.
179. PRATT ET AL., supra note 84, at 304-05.
180. See supra notes 141-143 and accompanying text (discussing alternative interpretations of "minority shares" by other scholars).
181. PRATT ET AL., supra note 18, at 355.
182. Id. at 357 (citing Shannon P. Pratt, Control Premiums? Maybe, Maybe Not - 34% of 3rd Quarter Buyouts at Discounts, SHANNON PRATT'S BUSINESS VALUATION UPDATE, Jan. 1999, at 1, 1-2).
183. Professor Hamermesh was one of these "others." Commenting on Kleinwort Benson Ltd. v. Silgan Corp., No. 11107, 1995 Del. Ch. LEXIS 75 (June 15, 1995), Hamermesh observed in 1995 that "the unadjusted use of comparative market analysis as a measure of 'fair value' improperly substitutes a market value approach for the 'proportionate share of enterprise value' approach, and will tend to understate 'fair value.'" Chancery Court Appraisal Increases Market Value To Reflect Enterprise Value but Otherwise Accepts Respondents' Claims and Adopts Valuation Below Merger Consideration, 14 Bank & Corp. Governance L. Rep. (Computer L. Rep.) 860, 863 (1995). The fatal flaw in this comment was its unsupported assumption that a share lacking control necessarily has a value substantially below the proportionate share of the going concern.
184. See supra Part I.D.
185. See supra Part I.D.
186. See supra note 36 and accompanying text.
187. Carney & Heimendinger, supra note 21, at 857-58.
188. See DEL. CODE ANN. tit. 8, § 262(h) (2006).
189. See Jensen & Meckling, supra note 127, at 313.
190. See supra note 101 and accompanying text.
191. Donald C Langevoort, Resetting the Corporate Thermostat: Lessons from the Recent Financial Scandals About Self-Deception, Deceiving Others and the Design of Internal Controls, 93 GEO. L.J. 285, 306-08 (2004).
192. Coates makes the asymmetric information argument. Coates, supra note 28, at 1276 & n.80 (citing Victor Brudney, Efficient Markets and Fair Values in Parent Subsidiary Mergers, 4 J. CORP. L. 63, 71 (1978)).
193. See, e.g., Doft & Co. v. Travelocity.com, Inc., No. 19734, 2004 Del. Ch. LEXIS 75, at *21-22 (May 21, 2004) ("Delaware law clearly prefers valuations based on contemporaneously prepared management projections because management ordinarily has the best first-hand knowledge of a company's operations."), reconsideration granted, 2004 Del. Ch. LEXIS 84 (June 10, 2004); Gilbert v. MPM Enters., 709 A.2d 663, 669 (Del. Ch. 1997) (accepting management forecasts for DCF purposes absent evidence of unreliability), aff'd, 731 A.2d 790, 798 (Del. 1999).
194. See, e.g., ROBERT J. SHILLER, IRRATIONAL EXUBERANCE, at xi-xii (2000).
195. 172 A. 452, 455 (Del. Ch. 1934) ("There are too many accidental circumstances entering into the making of market prices to admit them as sure and exclusive reflectors of fair value.").
196. See DEL. CODE ANN. tit. 8, § 251(c) (2006) (requiring the approval of a majority of outstanding shares for a merger).
197. See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del. 1986) (holding that in a sale of the company, directors have a duty to obtain the highest reasonably available current value).
198. See, e.g., Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1282 (Del. 1989) (noting directors' duty "to obtain the highest price reasonably available for the company," where two directors and senior officers were participants in the challenged leveraged buy-out).
199. See, e.g., McMullin v. Beran, 765 A.2d 910, 919 (Del. 2000) (recognizing that the board is unable to seek an alternative transaction opposed by a majority shareholder).
200. See Kahn v. Lynch Commc'n Sys., Inc., 669 A.2d 79, 84 (Del. 1995) (describing the "fair dealing and fair price" standard in entire fairness scrutiny); Gesoff v. IIC Indus., 902 A.2d 1130, 1144 (Del. Ch. 2006) (explaining that the entire fairness review serves to protect the interests of minority shareholders).
201. Gesoff, 902 A.2d at 1155 (assessing fair value for purposes of determining damages for a controller's breach of fiduciary duty).
202. Doft Sc Co. v. Travelocity.com, Inc., No. 19734, 2004 Del. Ch. LEXIS 75, at *4-6 (May 21, 2004) (describing Travelocity's inferior market position relative to Expedia and its limited ability to develop the "merchant model business"), reconsideration granted, 2004 Del. Ch. LEXIS 84 (June 10, 2004).
203. See id. at *22-23 (noting that management had dismissed its own favorable DCF projections as unreliable).
204. See id. at *18, *48 (stating diat the court's fair value determination was $32.76 using a 30% IMD adjustment, compared to petitioners' low-end DCF valuation of $33.70 based on management projections).
205. Hamermesh & Wachter, supra note 2, at 158-63.
206. See Del. Open MRI Radiology Assocs. v. Kessler, 898 A.2d 290, 314 (Del. Ch. 2006).
207. Hamermesh & Wachter, supra note 2, at 165.