## Facts

- SCM Corporation was a publicly traded manufacturing company targeted in a takeover battle.
- Hanson Trust PLC launched a tender offer and ultimately acquired control, followed by a cash-out merger that eliminated the remaining public shares at $75 per share.
- William V. Cawley, a shareholder and former SCM treasurer, held shares including a substantial number acquired through incentive stock options (ISOs).
- The merger structure triggered the exercise/cash-out of ISOs, creating a significant corporate tax deduction and corresponding tax benefit to SCM.
- Cawley dissented and sought appraisal under New York Business Corporation Law (BCL) § 623, arguing the corporate tax benefits attributable to the merger should increase the judicially determined “fair value” of SCM shares.

## Issues

1. Whether a court fixing “fair value” in a BCL § 623 appraisal may disregard merger-generated tax deductions that are prospective but nonspeculative and reasonably quantifiable.
2. If such tax benefits are considered, whether they must be allocated pro rata among all shares of the same class or only to shareholders whose shares generated the deduction.

## Decision

- The New York Court of Appeals reversed the Appellate Division and remitted for a new appraisal hearing.
- The lower courts abused their discretion by excluding the merger-related tax benefits from the fair-value analysis.
- The trial court must consider prospective, nonspeculative tax benefits accruing to the corporation as a result of the merger when determining fair value.
- Any recognized corporate-level tax benefit must be allocated proportionately among all shares of the same class, so dissenters receive their aliquot share.

## Legal Principles

- In a BCL § 623(h)(4) appraisal, “fair value” is determined by considering all relevant factors; deal price and market price are not necessarily conclusive.
- Merger-related tax benefits may be included in fair value when they are reasonably foreseeable, nonspeculative, and sufficiently ascertainable.
- Shares of the same class must be treated equally in appraisal; corporate-level increments in value, including qualifying tax attributes, must be distributed pro rata among all holders of that class.
- Failure to consider a clearly identifiable, merger-caused, nonspeculative corporate tax benefit can constitute an abuse of discretion in fixing fair value.

## Conclusion

The court required appraisal courts to account for reasonably certain merger-generated corporate tax benefits as part of “fair value” and to distribute any such value equally across all shares of the same class, remanding for a new valuation consistent with those requirements.


Cawley v. SCM Corp., 530 N.E.2d 1264 (N.Y. 1988)