## Facts

- WXL International, Inc. was a Delaware corporation majority-owned (95%) by its parent, Communications Telesystems International (CTS); Carl Borruso and William Lee held the remaining 5% (500,000 shares).
- On December 16, 1997, WXL merged into CTS in a parent-subsidiary merger.
- CTS paid the minority stockholders $0.02 per share; the minority stockholders dissented and timely sought appraisal under DGCL § 262.
- At trial, both valuation experts used the comparable-company method and testified it was the only appropriate method on the record.
- The experts agreed to use total revenues as the valuation base and relied on a set of publicly traded telecommunications companies as comparables, differing only on certain adjustments.
- The core disputed adjustments were: (1) a growth premium for WXL’s recent growth, (2) the need for and placement of a control premium to remove minority pricing effects from public-market multiples, and (3) a discount for lack of marketability (a “private company” discount).

## Issues

1. Whether WXL’s recent above-average growth justified a separate growth premium in a comparable-company valuation.
2. Whether, and how, a control premium should be applied to remove the minority discount embedded in public-company trading multiples.
3. Whether a discount for lack of marketability/private-company status may be applied in determining “fair value” under DGCL § 262.

## Decision

- The Court of Chancery determined the fair value of WXL shares as of December 16, 1997 under DGCL § 262.
- The court rejected a separate growth premium.
- The court added a control premium to adjust the equity value derived from the comparable-company method, rather than applying the premium to enterprise value in a way that would inflate debt.
- The court rejected any marketability/private-company discount on the evidentiary record presented.
- The resulting fair value was substantially higher than the $0.02 merger price.

## Legal Principles

- In a DGCL § 262 appraisal, “fair value” reflects the corporation as a going concern and generally excludes reductions tied to a stockholder’s minority status.
- When public-company trading multiples are used, an adjustment may be necessary to eliminate the minority discount inherent in market prices; a control premium can serve that function.
- A control premium should be applied to equity value derived from market multiples, not in a manner that increases the value of debt or otherwise distorts enterprise-value components.
- A growth premium is not warranted merely from short-term outperformance where comparable-company multiples already reflect growth expectations or the record does not support sustainable superior growth.
- A marketability/private-company discount is not automatically applied in appraisal and may be rejected where it would operate as an impermissible illiquidity/minority reduction or lacks evidentiary support.

## Conclusion

The court appraised WXL using a revenue-based comparable-company analysis, declined to add a growth premium, applied a control premium to the equity value to remove minority-market pricing effects, and refused to apply a marketability discount, yielding a fair value far above the merger consideration.


Borruso v. Communications Telesystems Int’l, 753 A.2d 451 (Del. Ch. 1999)