## Facts

- MacAndrews & Forbes Group Inc. acquired Technicolor, Inc. through a 1982 tender offer followed by a January 24, 1983 second-step cash-out merger at $23 per share.
- Cede & Co., as record holder for Cinerama, Inc. (beneficial owner of 201,200 shares, about 4.4%), dissented and sought a statutory appraisal under 8 Del. C. § 262.
- Technicolor operated a diversified group of businesses, including motion-picture film processing and a capital-intensive expansion into one-hour photo retailing.
- The court conducted a lengthy consolidated trial in which valuation turned largely on discounted cash flow (DCF) analysis, including forecasts, capital structure assumptions, and discount-rate inputs.
- Technicolor’s expert used a CAPM-based cost of equity that incorporated (i) a beta of 1.7 drawn from a post-announcement recommendation during a volatility spike and (ii) an added 4% small-capitalization premium, yielding discount rates roughly in the 17–20% range.
- Petitioners’ expert used DCF with lower discount rates (often presented as a range) and more favorable cash-flow assumptions, producing higher indicated values.
- The court credited evidence that Technicolor faced material business risk, including cyclical demand in its core business and a large, underperforming one-hour photo investment program.

## Issues

1. What was the “fair value” of Technicolor common stock as of January 24, 1983 under 8 Del. C. § 262, excluding value arising from the merger itself?
2. In applying DCF, what projections and discount rates (including beta and any small-company premium) best reflected Technicolor’s risk and expected cash flows as a going concern?
3. To what extent, if any, could post-agreement acquirer business plans developed between signing and closing be incorporated into the fair-value determination without violating § 262’s merger-exclusion rule?

## Decision

- The Court of Chancery determined the statutory fair value of Technicolor’s shares to be approximately $21.60 per share as of the merger date.
- The court relied primarily on DCF as the valuation method for a diversified operating company.
- The court adopted discount-rate assumptions closer to Technicolor’s presentation, including a comparatively high cost of capital driven by a high beta and a small-capitalization premium.
- The court was unpersuaded by petitioners’ lower discount-rate approach and higher cash-flow assumptions, finding they did not adequately account for Technicolor’s business and execution risks.

## Legal Principles

- In a Delaware statutory appraisal, “fair value” is determined as of the merger date and must exclude any element of value arising from the accomplishment or expectation of the merger.
- The court may consider all relevant valuation evidence, and DCF may be a principal method when reliable projections and inputs are available for valuing the company as a going concern.
- Selection of DCF inputs is case-specific; the court must assess expert assumptions about risk (including CAPM beta), size-related risk adjustments, projected cash flows, and capital structure, and may reject inputs it finds unsupported by the record.
- Business risk evidence bearing on volatility, capital intensity, and the performance of operating initiatives can justify higher discount rates that reduce present-value indications.

## Conclusion

The Court of Chancery awarded appraisal at about $21.60 per share, grounding its § 262 fair-value determination in a DCF analysis that used relatively high discount rates based on perceived volatility and execution risk, while limiting inclusion of value tied to merger-related expectations.


Cede & Co. v. Technicolor, Inc., No. Civ. A. 7129, 1990 WL 161084 (Del. Ch. Oct. 19, 1990)