## Facts

- Straight Arrow Publishers, Inc. (SAP), a Delaware corporation whose principal operating asset was *Rolling Stone* magazine, was controlled by Jann S. Wenner and his wife, who held about 79% of SAP’s common stock.
- SAP implemented a “Repositioning Plan” for *Rolling Stone* during the early 1980s; from 1981 to 1985 advertising revenue, subscriptions, and net income increased.
- SAP also operated other publications (including *Record* and *College Papers*) that were discontinued after ongoing losses.
- On January 8, 1986, a holding company merged into SAP in a transaction converting SAP shares into the right to receive $100 per share (or canceling shares).
- Laurel Gonsalves, a minority shareholder holding 2,000 shares, dissented from the cash-out merger and petitioned for statutory appraisal under 8 Del. C. § 262.
- After a Court of Chancery appraisal trial featuring competing expert valuations, the court determined fair value at $131.60 per share and awarded prejudgment simple interest at the legal rate.
- The Chancery Court treated the experts’ approaches as mutually exclusive and adopted SAP’s expert methodology without considering intermediate options (e.g., alternative multi-year earnings bases).
- Gonsalves appealed the valuation method; SAP cross-appealed the interest award.

## Issues

1. In a § 262 appraisal, may the Court of Chancery fix fair value by adopting one party’s expert methodology and resulting valuation wholesale, rather than exercising independent judgment based on the full record?
2. Must the Court of Chancery provide a reasoned explanation for its prejudgment interest rate and compounding choice in an appraisal proceeding?

## Decision

- The Delaware Supreme Court reversed the appraisal valuation and remanded for a new valuation hearing.
- The Court held it was legal error for the Court of Chancery to determine value by accepting one expert’s methodology and results to the exclusion of the other, without independent judicial evaluation.
- On the cross-appeal, the Court directed that, on remand, the Court of Chancery should supply reasons supporting any prejudgment interest award.

## Legal Principles

- In a Delaware appraisal action under 8 Del. C. § 262, determining “fair value” is a judicial responsibility requiring independent judgment; the court may not effectively delegate that task by choosing an expert’s valuation wholesale.
- The Court of Chancery may synthesize, adjust, or combine portions of competing expert analyses to reach a valuation supported by the evidence, rather than treating expert positions as all-or-nothing alternatives.
- Prejudgment interest determinations in appraisal proceedings must be supported by an articulated rationale explaining the selected rate and method.

## Conclusion

The Delaware Supreme Court required the Court of Chancery to perform an independent, evidence-based appraisal valuation rather than adopting one expert’s methodology in full, and it required a reasoned explanation for any prejudgment interest award on remand.


Gonsalves v. Straight Arrow Publishers, Inc., 701 A.2d 357 (Del. 1997)