## Facts

- A parent company controlled Universal Pictures Co. (about 92%) and wholly owned Universal City Studios, Inc. (UCS).
- On March 25, 1966, Universal was merged into UCS via Delaware’s short-form merger statute, 8 Del. C. § 253.
- Minority shareholders were offered $75 per share and dissented, perfecting appraisal rights under § 253(e) and § 262.
- A court-appointed appraiser issued a final report (March 29, 1973) valuing the shares at $91.47 per share, using:
  - Earnings value of $92.89 per share (80% weight), and
  - Asset value of $85.82 per share (20% weight).
- The appraiser capitalized earnings using a five-year mean earnings-per-share measure and a 16.1 price-to-earnings multiplier derived from nine comparable motion-picture companies.
- Plaintiffs excepted to the report, urging $131.89 per share based on higher earnings, a reconstructed market factor, and higher asset value with different weights.
- Defendant excepted to the report, urging $52.36 per share based on lower earnings, an independent dividend valuation factor, and different weights.
- The disputes centered on the proper earnings capitalization multiplier, asset value, use of dividend value, reconstruction of market value, and the weighting of valuation inputs.

## Issues

1. What is the statutory “value” (fair value) of the minority shares as of the merger date, excluding any value arising from the merger itself, in an appraisal under 8 Del. C. §§ 253(e) and 262?
2. Whether the appraiser used permissible valuation methods (including earnings capitalization and asset value) and properly declined to use independent dividend value or reconstructed market value.
3. What level of review applies to exceptions to a neutral appraiser’s findings, and when the court should modify the appraisal.

## Decision

- The Court of Chancery largely sustained the appraiser’s report and methodology, rejecting both parties’ extreme valuations.
- The court approved reliance primarily on capitalized earnings for a going-concern operating company, with asset value as a supporting factor.
- The court accepted the use of a comparative-industry P/E multiplier and a multi-year earnings average as a reasonable, evidence-based approach.
- The court agreed that dividends should not be treated as a separate valuation factor where doing so would duplicate or distort the earnings analysis.
- The court agreed that a reconstructed market price was too speculative absent a free and active trading market.
- The court emphasized that it would not lightly disturb an appraiser’s fact-intensive judgment absent clear error or use of improper principles.

## Legal Principles

- In a § 253 short-form merger, dissenting shareholders are entitled to appraisal under § 262 procedures.
- Appraisal “value” is the fair value of the shares as of the merger date, excluding any element of value arising from the expectation or accomplishment of the merger.
- Fair value is determined from all relevant factors; no single valuation formula is mandatory.
- Capitalization of earnings, supported by comparative company data, is a permissible primary method for valuing a going concern.
- Asset value may be considered and weighted as a secondary factor where the company’s worth primarily reflects earning capacity.
- Dividend data may be disregarded as an independent factor when it is derivative of earnings and risks double counting or misweighting.
- Market price evidence is most useful when derived from a reliable, active market; reconstructed market value may be rejected as speculative.
- On exceptions, the court generally defers to an appraiser’s supported findings and methodology and intervenes only for clear error or incorrect standards.

## Conclusion

The court sustained a blended earnings-and-assets appraisal that emphasized capitalized earnings, declined to add separate dividend and reconstructed market components, and reiterated that Delaware appraisal is a flexible, record-based determination of going-concern fair value excluding merger-generated value, with substantial deference to a neutral appraiser absent clear error.


Francis I. duPont & Co. v. Universal City Studios, Inc., 312 A.2d 344 (Del. Ch. 1973)