The Cost of Capital in Shareholder in Dissent and Entire Fairness Cases

Abstract

This presentation discusses court decisions, primarily in Delaware, regarding the various components of WACC (the weighted average cost of capital) and related issues.

Full text

THE COST OF CAPITAL IN
SHAREHOLDER DISSENT AND
ENTIRE FAIRNESS CASES
Gilbert E. Matthews, CFA
BVR Webinar, January 13, 2015
SUTTER SECURITIES INCORPORATED

-
This presentation is based on my chapter,
“Cost of Capital in Appraisal, Oppression
and Fairness Cases,” in The Lawyer’s
Guide to Cost of Capital, Shannon P. Pratt
and Roger J. Grabowski, eds. (American
Bar Association, 2014), and includes
additional material.
SUTTER SECURITIES GIL@SUTTERSF.COM (415) 352-6336
2

Introduction
Delaware courts, the primary venue for U.S.
corporate litigation, have effectively set the
standards for corporate valuations
The Delaware Courts’ preferred valuation method is
discounted cash flow (DCF)
The cost of capital is a vital component in DCF
valuations
Delaware sets the standards for corporate valuations
for appraisal and fairness
Valuators should be guided by Delaware approach for
corporate valuations generally, and specifically for
determining cost of capital
3

The Importance of Delaware
Most cases discussing details of methodology in
appraisal and fairness cases have come from the
Delaware Court of Chancery
Very few published non-Delaware decisions discuss
cost of capital
Delaware Court of Chancery decisions are published,
in contrast to lower court decisions in other states
There are a handful of U.S. District Court valuation
decisions based on state law
Appellate cases rarely deal with the details of
valuation methodology
Thus this presentation will primarily address
Delaware case law
4

DCF Accepted in Weinberger
In appraisal and entire fairness cases, Delaware
assesses value using the “fair value” standard
The Delaware Supreme Court said in 1983 that the
Court of Chancery’s determination of fair value
“must include proof of value by any techniques or
methods which are generally considered accept-
able in the financial community” (Weinberger, 1983)
It approved using DCF in appraisals, saying that
“elements of future value ... which are known or
susceptible of proof as of the date of the merger ...
may be considered” in Delaware appraisals (Id.)
5

Although Delaware courts favor DCF, “the ultimate
selection of a valuation framework remains within
the Court of Chancery's discretion” (M.G. Bancorp., 1999)
The Court of Chancery has rejected DCF valuations
on several occasions for various reasons, primarily
because quality of projections was inadequate
The courts continue to use other valuation
methods, principally the guideline company
method
DCF in Delaware Law
6

Cost of Capital in Delaware Law
In determining the cost of capital to be applied
in DCF valuations, the Delaware Court of
Chancery has primarily used the Capital Asset
Pricing Model (CAPM)
In a few cases, the Court has used the build-up
model, primarily in situations where the
testifying experts relied on the build-up model
rather than CAPM
7

CAPM in Delaware Law
Delaware first used CAPM to determine the cost of
capital in in the 1990 Technicolor decision
Since then, the Court has commonly used CAPM
The Court has usually applied CAPM even when future
results are highly speculative
It rejected a 35%-45% venture capital cost of equity and used
a 21% CAPM-based number (Gilbert, 1997)
It accepted a 30% discount rate calculated using CAPM and
rejected a higher rate (Ryan, 1996)
In contrast, for a small biotech company, the Court did not
use CAPM – it used the 50% discount rate that had been used
by the company’s investment banker as its financial advisor in
the course of the transaction (Gray, 2002)
8

The basic formula for cost of equity is:
Ce= Rf+ (RPex β) + RPs+ RPc± RPi
where Ce= expected rate of return (cost of equity)
Rf= risk-free rate
RPe= market equity risk premium (ERP)
β= beta
RPs= size (small company) premium
RPc= company-specific risk premium (CSRP)
RPi= industry risk premium
Cost of Equity in the
Capital Asset Pricing Model
9

WACC is a function of a company’s cost of equity
and its after-tax cost of debt
WACC = Cex Ep+ Cdx (1 – T) x (1 – Ep)
where Ce= expected rate of return (cost of equity)
Ep= equity as percent of capital structure
Cd= average interest rate on debt
T = marginal tax rate
Cdx (1 – T) = cost of debt
We will discuss the Courts’ views as to each
component of WACC, primarily based on Delaware
cases
Weighted Average Cost of Capital
(WACC)
10

Components of WACC:
The Risk-Free Rate
Delaware usually bases the risk-free rate on the 20-
year Treasury rate
In 2000, the Court of Chancery rejected the 30-year
Treasury yield as the risk-free rate and stated that
“using the 20-year Treasury rate is ... in keeping
with the accepted practice” (MedPointe, 2004)
11

Risk-
Free Rate Is Usually Based
on 20-year Treasuries, But ...
However, a 2013 Delaware case used the 10-year
Treasury yield (Merion Capital, 2013)
The court cited 4 treatises:
o2 supported the 10-year rate,
o1 supported the 10-year rate for mature firms,
o1 supported the 20-year rate
Nonetheless, the 20-year rate was applied in recent
Delaware cases in 2012, 2013 and 2014
A U.S. District Court, using Nevada law, based the
risk-free rate on 5-year Treasuries (Steiner, 1998)
12

Components of WACC:
The Equity Risk Premium
Prior to 2004, Delaware decisions which used
CAPM usually accepted a 7.0% to 7.2% equity
risk premium (ERP) based on Ibbotson data
Delaware courts accepted these rates because
most expert testimony used ERPs based on
Ibbotson, which uses data for all years from
1926 forward
13

ERP – Fama-French
In 2004, Leo Strine, Jr. (then Vice Chancellor, now
Chief Justice of the Delaware Supreme Court)
rejected a 7.3% historical ERP and instead used
Fama-French to derive a 4.5% ERP, stating:
Although the Fama-French three-factor CAPM model
is not wholly accepted, neither is the original CAPM
itself. By better factoring in the real risks of
leverage, the Fama-French model captures useful
data that contributes to a more reliable and real-
world cost of capital. (Union Illinois, 2004)
Equal weight was given to Fama-French and “pure
CAPM” in a 2006 decision (PNB Holding, 2006)
14

What Is the Supply Side ERP?
The essential difference between supply side ERP and
historical ERP is that the supply side ERP does not
include the impact of changes over time in P/E ratios
Since P/E ratios in the market in recent decades are
higher than in early periods, the historical ERP is higher
than the supply side ERP
The supply-side ERP, as published in the Valuation
Yearbook, is calculated using the same equation as the
historical ERP with slightly different inputs. The
difference lies within the equity returns whereby the
supply-side ERP only includes the returns attributable to
economic growth (i.e., inflation) and company earnings.
These returns are termed supplied equity returns.
(Magdalena Mroczek, “Unraveling the Supply-Side Equity Risk
Premium,” The Value Examiner, Jan.-Feb. 2012)
15

Supply Side ERP
Accepted in 2010
In 2010 Strine rejected a 7.1% ERP based on
historical data and accepted a 6.0% ERP based on
Ibbotson’s supply side ERP, the expert’s teaching
experience, and relevant literature
[There are] persuasive reasons support[ing]
a lower forward-
looking real return on equity
than the return found in the historical data
(Global GT, 2010)
16

The Supply Side ERP
Is Now the Standard
The supply-side equity risk premium was again adopted in
three Delaware decisions in 2012 and 2013
I find that the supply side equity risk premium of 5.73% is
the appropriate metric to be applied. (Just Care, 2012)
Orchard has not provided me with a persuasive reason
to revisit the supply-side versus historical equity risk
premium debate. I therefore find that the Ibbotson
Yearbook’s supply-side equity risk premium of 5.2%
is an appropriate metric. (Orchard Enterprises, 2012)
Selection of a supply-side equity risk premium is consistent
with prior decisions by this Court. (Merion Capital, 2013)
17

Components of WACC:
The Cost of Debt
The entity being appraised is the company as it
existed before the transaction
Thus, the Courts have concluded that, in an
appraisal, a company’s pre-transaction borrowing
cost is appropriate for determining cost of debt
A recent U.S. District Court case (under Wisconsin law)
determined the cost of debt based on the credit rating
implied by the company’s size and pre-transaction
financial condition (Trostel, 2012)
18

Cost of Debt – Technicolor
In Technicolor, the pre-transaction borrowing cost
was not used due to the facts of the transaction
Technicolor was acquired in a two-step transaction –
a third-party tender offer followed somewhat
belatedly by a squeeze-out
Therefore, it was valued under the acquiror’s new
business plan which became operative after the
tender offer – but before the squeeze-out occurred
Therefore, the Court did not use Technicolor’s pre-
tender offer borrowing cost but instead used the
interest rate on the acquirer’s debt at the time of the
squeeze-out (Technicolor, 2003)
19

Tax-Affecting Cost of Debt

When the Court of Chancery computes WACC for
a C Corp, it tax-
effects the cost of debt based on
the company’s marginal corporate tax rate
When the Court appraised an S Corp in 1991, it did
not tax-effect the cost of debt (Radiology Associates, 1991)
However, in a 2006 case valuing a debt-free S Corp,
the Court tax-effected earnings based on taxes
payable by shareholders (Delaware Open MRI, 2006)
In my opinion, the Court is likely to tax-effect S Corp
debt similarly in future cases
20

Cost of Debt – NOLs
In a case where the company had net operating loss
carryforwards (NOLs), the Court of Chancery
applied a full marginal tax rate to cost of debt
because “deductions for interest payments would
allow the Company to save its NOLs for subsequent
years” (Gholl, 2004)
When a company could only deduct part of its
interest payments for U.S. taxes, a District Court
prorated the tax effect (Steiner, 1998)
21

Delaware Appraisals Use the
Company’s Capital Structure
In appraisal cases, Delaware calculates WACC
based on the debt/equity ratio in the company’s
actual or intended capital structure at the valuation
date – not a hypothetical capital structure based on
industry norms
Debt incurred in the transaction leading to the
appraisal is not considered
The Court rejected a hypothetical debt-free capital
structure when the company being appraised had a
leveraged structure (Andaloro, 2005)
On the other hand, it rejected an assumption that
the parent would have perpetually rolled over a
leveraged subsidiary’s existing debt (Id.)
22

Court Disregards Capital Structure
Changes in Anticipation of Transaction
The Court disregards changes in capital structure in
anticipation of the transaction if the changes would
not have been made but for the transaction
The Company paid off all of its debt, however, as a
condition of the Merger Agreement. Moreover, in
connection with the merger, all of Just Care’s preferred
stock was converted to common equity.
...
I find that the correct capital structure for an appraisal
of Just Care is the theoretical capital structure it would
have maintained as a going concern. (Gearrald, 2012)
.
23

Using the Expected
Capital Structure
The Court may rely on testimony to
determine the appropriate capital structure
The
Company's actual capital structure at
the time of the Merger consisted of no debt,
but the parties agree that as a going concern
the Company would be expected to take on a
certain amount of debt. (Laidler, 2014)
24

Other Jurisdictions May Differ
In contrast to Delaware’s standard, a U.S.
District Court applying Nevada appraisal law
did not accept the company’s actual capital
structure
The Court said that it was “not precluded
from using the industry average” even
though “management has ‘no plans’ to
change the capital structure” (Steiner, 1998)
25

Capital Structure in Fairness Cases
It should be noted that in fairness cases,
Delaware considers acquisition value and
accepts the use of “an ‘optimal’ debt/equity
structure” (Wacht, 1994)
In contrast to fairness cases, which value a
company as it might be run by a third party,
appraisal cases value a company “as is” under
its current management
26

Cost of Equity Is a Function
of Capital Structure
However, no decision has yet discussed the
important fact that the cost of equity is a
function of the capital structure, increasing as
leverage increases
Cost of equity is necessarily higher in a highly
leveraged company than in an unleveraged
company
27

Capital Structure Circularity
A 2004 decision discussed the issue of circularity
in determining the debt/equity ratio and the
capital structure
In an appraisal proceeding, the debt/equity ratio is
usually determined based on the relative values of
the pre-transaction debt (a known number) and
equity (the value of which is the subject of the
litigation)
When the market value of the equity is unknown,
its calculated equity depends on WACC, which, in
turn, depends on the initially selected equity value
28

Capital Structure Circularity (2)
A 2004 decision discussed the issue of circularity
because of starting with the valuator’s selected
equity value
[The] assumed $10.38 per share ... and ... assumed
$41.16 per share ‘enterprise value[s]’ are identical to
the ultimate ‘fair value’ that each expert determined
... exemplify[ing] the ultimate circularity inherent in
WACC.
The only sensible way (in the Court's view) to avoid the
circularity ... is to use an enterprise valuation ... that
is not litigation-driven. (Emerging Communications, 2004)
29

Components of WACC:
Beta
The Court accepts the concept that the ERP must
be adjusted with an appropriate beta
When shares of the company being appraised
were actively traded prior to the transaction,
customary practice is to determine beta by
reference to the company’s market prices
30

The Court Questions Beta
Based on Guideline Companies
Strine, however, expressed concern about
determining beta for private companies based
on the betas of guideline public companies:
I am chary about concluding that corporations
that issue illiquid securities for which beta ...
is indeterminable have a lower cost of equity
than publicly-listed corporations whose
durability is reflected in a trading history
producing a reliable beta. (PNB Holding, 2006)
31

Beta Should Not Be Based
on a Short Period
The Court generally prefers betas based on long
time periods
However, one decision gave equal weight to two-
year betas and five-year betas of guideline
companies (Andaloro, 2005)

For both periods, the Court gave greater weight
to betas of companies deemed to be more
comparable
32

Beta Based on Guideline Companies
Should Consider Relative Risk
Beta should be adjusted to reflect incremental risk
when the subject company is smaller and more
vulnerable than guideline companies:
The plaintiff's expert derived Cell Tech's beta of 2.0
from the “comparable” company's beta of 2.2,
thereby suggesting that Cell Tech involved lower risk
than did the ‘comparable’ company. The comparison
is factually unsupported. (Ryan, 1996)

The Court rejected beta of 0.63 for thinly traded
LP units and used defendant’s expert’s beta of 3.35
(Gotham Partners, 2000)
33

Raw Beta or Adjusted Beta?
In 1998 Vice Chancellor Steele used raw beta:
Although “adjusted" beta may be appropriately used
in future cases when supported by a record subject
to the crucible of cross-examination, I find that
petitioner did not meet his burden to prove why
“adjusted” beta should be used in this case.
(Gilbert, 1998)
However, in 2004 Chancellor Chandler questioned
the use of raw beta and instead used adjusted beta:
Betas based on observed historical data are more
representative of future expectations when they are
adjusted. (JRC Acquisition, 2004)
34

Raw Beta or Adjusted Beta? continued
In 2010 Strine rejected an adjusted beta for a
foreign company, commenting that "no reliable
literature or evidence was presented” to show that
the beta of a company operating in Russia would
revert to 1.0 (GT Global, 2010)
Instead, he looked at raw beta and industry betas.
He concluded:
I find that a beta that gives 2/3 weight to the
Bloomberg historic raw beta of 1.32 and
1/3 weight to the 1.24 industry beta is the
best approach to this DCF analysis. (Id.)
35

Components of WACC:
The Size Premium
Delaware “has traditionally recognized the
existence of a small stock premium in appraisal
matters” (ONTI, 1999)
There is finance literature supporting the position
that stocks of smaller companies are riskier than
securities of large ones and, therefore, command
a higher expected rate of return in market.
(Emerging Communications, 2004)
The Court of Chancery recognizes that concepts
of beta and size premium are distinct and that
size premium measures risk that is not
measured by beta (JRC Acquisition, 2004)
36

Size Premium May Be Rejected
The court may decide, however, that based on
facts and circumstances, a size premium should
not be applied:
I cannot conclude that it has been persuasively
shown that the statutory fair value of Technicolor
stock would more likely result from the inclusion
of a small capitalization premium than from its
exclusion. (Technicolor, 1990)
37

An Unusual Approach to
the Size Premium
An Alabama appraisal decision accepted defendant’s
expert’s size premium that considered two factors, a
“micro-capitalization risk premium” of 3.5% and a
“company size premium” of 4.35%
The typical small company has a higher degree of
investment risk than a similar, but larger company.
...
Since a small, closely-held company is usually restricted
to narrower markets than publicly-traded companies,
an additional small company premium is warranted.
(Baron Services, 2003)
This unconventional approach recognizes that the
size premium may result from both a company’s
competitive position and its access to capital markets
38

Size Premium Data
The Court must consider whether to use size
premiums based on data starting in 1926 or starting
at a later date
In one case, the Court took the unusual approach of
weighting the historical premium data for various
periods:
[T]he difference in returns over sixty-nine years is
much greater than that over other, perhaps equally
valid periods of time. ... I think the better approach is
to weight the more recent results more heavily than
the older ones. ... I will take the returns over the past
14, 28, 42, 56, and 69 years and average them. (ONTI,
1999)
39

Circularity Again –
The Size Premium
The Court recently discussed the “issue of circularity”
that arises because selection of a size premium is a
function of the value of enterprise selected by the
valuator:
[A] discounted cash flow analysis both values the size of
a company ... and relies on the appropriate Ibbotson
premium to determine the value of the company. This
process is circular; which should come first, the valuation
of the company or the selection of the Ibbotson risk
premium? (Sunbelt Beverage, 2010)
In this case, the Court used the weighted average of
the Ibbotson size premiums for the two deciles into
which the subject company's value might fall
40

Components of WACC:
Company-Specific Risk Premium
In a 1994 fairness case, the Court criticized
plaintiff’s expert for not using a company-specific
premium (CSRP) in calculating WACC (Wacht, 1994)
The Court accepted a CSRP in a 1999 appraisal,
noting that no beta had been calculated by the
experts, and explaining:
I am willing to accept that the addition of a
company-specific premium is appropriate in the
absence of beta [emphasis added]. (ONTI, 1999)
41

Courts Now Reluctant to Apply
Company-Specific Risk Premium
Although Delaware had previously accepted the
CSRP, in the past decade, courts have usually
declined to apply company-specific risk premium
CSRPs can only be included with evidence produced
at trial that persuades the court to accept the
adjustment (Gesoff, 2006; Sunbelt Beverage, 2010)
On balance, the current reluctance of courts to
accept CSRPs in CAPM means that an expert who
uses this premium should expect a strong
challenge on the stand
42

Components of WACC:
The Industry Risk Premium
The Court has rarely considered the industry risk
premium in a CAPM context because experts have
seldom applied industry risk premium in their
CAPM analyses
It was rejected in a case where it was one of the
“eyebrow-raising premiums that [the expert]
heaped on top of the core CAPM analysis” (Maric
Capital, 2010)
However, it has been addressed and accepted in
several cases where the expert used the build-up
method
43

Build-Up Method
Delaware courts usually reject the build-up
method because CAPM “offers more complete
information” (Hintmann, 1998)
However, the build-up model has been accepted
in some more recent decisions based on expert
testimony (Gholl, 2004; Henke, 2005; Laidler, 2014)
In a 2012 case where experts used both
methods, the build-up method was rejected
(Orchard Enterprises, 2012)
A U.S. District Court appraisal under Missouri
law applied the build-up method (Swope, 2001)
44

Build-Up Method Accepts
Company-Specific Premium
In contrast to its approach in CAPM, the Court
accepts the company-specific premium in
applying the build-up method
45

Build-Up Method Accepts Industry
Risk Premium in Lieu of Beta
Delaware has accepted the industry risk premium in
the build-up method when beta is unavailable:
[N]ot all public companies have a sufficient public
float for trading in their shares to provide a reliable
beta for use in calculating their cost of capital, forcing
a resort to the use of data from the industry or so-
called comparable companies.
...
The industry return data that Mitchell uses is an
acceptable substitute for that adjustment in this
situation when a beta cannot be estimated [emphasis
added].(Delaware Open MRI, 2006)
46

Mid-Year Convention
When WACC has been used in DCF calculations,
the mid-year convention has been accepted in
every Delaware case where the Court stated
that a testifying expert had used it
Several other jurisdictions have explicitly
accepted the mid-year convention
New York: United States Dredging, 2008
Virginia: U.S. Inspect, 2000
47

Reliance on Current Practice
in the Profession
Strine emphasized the court’s “duty” to recognize newly
accepted practices
When he rejected Historic ERP, he explained:
[W]hen the relevant professional community has mined
additional data and pondered the reliability of past practice
and come, by a healthy weight of reasoned opinion, to
believe that a different practice should become the norm,
this court's duty is to recognize that practice if, in the court's
lay estimate, the practice is the most reliable available for
use in an appraisal. (Global GT, 2010)
He stated that it should be left to valuation professionals
to resolve the debate:
[T]he relevant academic and professional community and
not this court should develop the accepted approach. (Id.)48

Where Are We Heading?
Controversy re CAPM
Several recent articles have questioned the
usefulness of the Capital Asset Pricing Model, e.g.:
Pablo Fernandez, “CAPM: an absurd model,”
http://ssrn.com/abstract=2505597 (Oct 6, 2014)
Mike Dempsey, “The Capital Asset Pricing Model
(CAPM): The History of a Failed Revolutionary Idea
in Finance?” ABACUS, Vol. 49, Supplement (2013)
Eric Nath, “The Biggest Business Valuation
Myth,”
30 Business Valuation Review 88 (2011)
49

Fernandez’s Criticisms
Prof. Fernandez cites numerous articles criticizing
both ERP and beta
In 2013, he empirically criticized beta in his articles:
“β=1 does a better job than calculated betas” and
“Are Calculated Betas Good for Anything”
(ssrn.com/abstract=1406923 and ssrn.com/abstract=504565)
He posits that CAPM users err in assuming that the
market has an expected market risk premium
He cites the wide ranges of risk premiums in
financial textbooks and in the responses to a broad
survey he recently conducted
50

Fernandez’s Conclusion
Prof. Fernandez believes that each of the following
basic assumptions that underlie CAPM are flawed:
×All investors have equal expectations about asset
returns
×Investors only care about expected return and
volatility of their investments
×All investors use the same beta for each stock
×All investors have equal expectations as to the
market risk premium
×The market risk premium is the difference between
the expected return on the market portfolio and
the risk-free rate
51

Dempsey’s Criticisms
Dempsey observes that “returns on stocks with
higher betas are systematically less than predicted
by the CAPM, while those of stocks with lower
betas are systematically higher”
He points to studies that have shown that:
[C]haracteristics such as firm size, earnings yield,
leverage, the firm’s ratio of book value of equity to
its market value, stock liquidity, and stock price
momentum appear to be important in describing
the distribution of asset returns at any particular
time
52

Dempsey’s Conclusion
Dempsey concludes:
The capital asset pricing model (CAPM) captures the idea
that markets are essentially rational and are an
appropriate subject for scientific inquiry. Unfortunately,
the facts do not support the CAPM. The additional
variables brought in to describe the distribution of asset
returns generally resist interpretation as contributing to a
risk-return relation. For this reason, we cannot interpret
more recent models as refinements of a fundamentally
robust risk-return relation. [emphasis added]
He cuttingly adds:
A good deal of finance is now an econometric exercise in
mining data either for confirmation of a particular factor
model or for the confirmation of deviations from a
model’s predictions as anomalies.
53

Nath’s Criticisms
Nath posits that private equity investors do not
use CAPM when buying businesses
His Business Valuation Review article faults CAPM
as being backward-looking and “not provid[ing]
anything close to a reasonable estimate for the
required rate of return on equity capital for most
investments”
54

Nath’s Alternative
Nath suggests an alternative:
[Rather than guessing, and using impenetrably
elaborate, indirect, historical data-mining methods,
perhaps one solution to the required rate of return
question is to just simply go out and ask investors
what rates of return they actually do use, and how
they go about pricing investments when they are
putting their own money on the line.
Nath points out that there is a source of data based
on a survey of market participants – Pepperdine
University’s Private Cost of Capital study
[http://bschool.pepperdine.edu/appliedresearch/research/pcmsurvey/content/ppcmp_2014_report.pdf]
However, this source currently is helpful for
speculative companies but not stable ones
55

Valuators Should Consider
Alternative Approaches
Pratt & Grabowski say in the 2014 edition of Cost
of Capital: Applications and Examples:
[G]iven that empirical data conflicts with the
pricing of risk as hypothesized by CAPM, the
analyst must understand the issues and consider
the benefits of adjusting the pure CAPM and of
using alternative[s] ...
Analysts should in many instances use multiple
methods of estimating the cost of capital ... rather
than relying on a single method such as CAPM.
56

Conclusion
Our goal as valuators is to arrive at an
appropriate value for our subject company
To do so, we need the essential elements of our
valuation method to be rational and reliable
The presentation has tried to inform you as to
which elements are well-established and accepted
by the Courts and the profession and which are
current areas of concern
The controversy over CAPM is lively, with
suggested alternatives but no consensus
The challenges to CAPM have not yet been
addressed in the courts
57

Cases discussing cost of capital in appraisal and/or fairness cases
DELAWARE
Andaloro v. PFPC Worldwide, Inc., 2005 Del. Ch. LEXIS 125 (Aug. 19, 2005)
In re AT&T Mobility Wireless Operations Holdings Litig., 2013 Del. Ch. LEXIS 201 (June 24, 2013)
Cavalier Oil Corp. v. Harnett, 1988 Del. Ch. LEXIS 28 (Feb. 22, 1988)
Crescent/Mach I Partnership, L.P. v. Turner, 2007 Del. Ch. LEXIS 63 (May 2, 2007)
Delaware Open MRI Radiology Associates v. Kessler, 898 A.2d 290 (2006)
In Re Emerging Communications, Inc. Shareholders Litigation, 2004 Del. Ch. LEXIS 70 (May 3, 2004)
Gearreald v. Just Care, Inc., 2012 Del. Ch. LEXIS 91 (Apr. 30, 2012)
Gesoff v. IIC Industries Inc., 902 A.2d 1130 (Del. Ch. 2006)
Gholl v. eMachines, Inc., 2004 Del. Ch. LEXIS 171 (July 7, 2004)
Gilbert v. MPM Enterprises, Inc., 709 A.2d 663 (Del. Ch. 1997)
Gilbert v. MPM Enterprises, Inc., 1998 Del. Ch. LEXIS 60 (April 24, 1998)
Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 855 A.2d 1059 (Del. Ch. 2003)
Gray v. Cytokine Pharmasciences, Inc., 2002 Del. Ch. LEXIS 48 (Apr. 25, 2002)
Global GT LP v. Golden Telecom, Inc., 993 A.2d 497 (Del. Ch. 2010)
Henke v. Trilithic Inc., 2005 Del. Ch. LEXIS 170 (Oct. 28, 2005)
Hintmann v. Fred Weber, Inc., 1998 Del. Ch. LEXIS 26 (Feb. 17, 1998)
Cede & Co. v. JRC Acquisition Corp., 2004 Del. Ch. LEXIS (Feb. 10, 2004)
Laidler v. Hesco Bastion, 2014 Del. Ch. LEXIS 75 (May 12, 2014)
Lane v. Cancer Treatment Centers of America, 2004 Del. Ch. LEXIS 108 (July 30, 2004)
LeBeau v. M.G. Bancorp., Inc., 1998 Del. Ch. LEXIS 9 (Jan. 29, 1998)
M.G. Bancorp., Inc. v. LeBeau, 737 A. 2d 513 (Del. 1999)
Maric Capital Master Fund, Ltd. v. Plato Learning, Inc., 11 A.3d 1175 (Del. Ch., 2010)
Cede & Co. v. MedPointe Healthcare, Inc. 2004 Del. Ch. LEXIS (Sept. 10, 2004)
58

Cases discussing cost of capital in appraisal and/or fairness cases [p. 2]
Merion Capital, L.P. v. 3M Cogent, Inc., 2013 Del. Ch. LEXIS 172 (July 8, 2013)
MPM Enterprises, Inc. v. Gilbert, 731 A.2d 790 (Del. 1999)
ONTI, Inc. v. Integra Bank, 751 A.2d 904 (Del. Ch. 1999)
In re Orchard Enterprises, Inc., 2012 Del. Ch. LEXIS 165, (July 18, 2012)
In Re PNB Holding Co. Shareholders Litigation, 2006 Del. Ch. LEXIS 158 (Aug. 18, 2006)
In Re Radiology Associates, Inc. Litigation, 611 A.2d 485 (Del. Ch. 1991)
Ryan v. Tad's Enterprises, Inc., 709 A.2d 682 (Del. Ch. 1996)
In Re Sunbelt Beverage Corp. Shareholder Litigation, 2010 Del. Ch. LEXIS 1 (Jan. 5, 2010)
Taylor v. American Specialty Retailing Group, Inc., 2003 Del. Ch. LEXIS 75 (July 25, 2003)
Cede & Co. v. Technicolor, Inc., 1990 Del. Ch. LEXIS 259 (Oct. 19, 1990)
Cede & Co. v. Technicolor, Inc., 684 A.2d 289 (Del. 1996)
Cede & Co. v. Technicolor, Inc., 2003 Del. Ch. LEXIS 146 ( Dec. 31, 2003)
TV58 Limited Partnership v. Weigel Broadcasting Co., 1993 Del. Ch. LEXIS 146 (July 22, 1993)
Union Illinois 1995 Inv. Ltd. Partnership v. Union Financial Group, Ltd., 847 A.2d 340 (Del. Ch. 2003)
In Re United States Cellular Operating Company, 2005 Del. Ch. LEXIS 1 (Jan. 6, 2005)
Wacht v. Continental Hosts, Ltd., 1994 Del. Ch. LEXIS 171 (Sept 16, 1994)
OTHER JURISDICTIONS
Ex parte Baron Services, Inc., 874 So.2d 545 (Ala. 2003)
In re Shares of Madden, 2005 Vt. Super. LEXIS 112 (May 16, 2005)
Steiner Corp. v. Benninghoff, 5 F.Supp.2d 1117 (D. Nev. 1998)
Swope v. Siegel-Robert, Inc., 243 F.3d 486 (8th Cir. 2001)
Albert Trostel & Sons Co. v. Notz, 2010 U.S. Dist. LEXIS 108778, at *40–41 (E.D. Wis. Sept. 28, 2010);
U.S. Inspect, Inc. v. McGreevy, 57 Va. Cir. 511 (2000), 2000 Va. Cir. LEXIS 524 (Nov. 7, 2000)
Shareholders in United States Dredging Corp. v. United States Dredging Corp., slip op., Index No.
002640/2006 (N.Y. Supr., Nassau Cty., May 19, 2008)
)
59