## Facts

- HMO-W Inc. was a closely held, provider-owned health care corporation with multiple minority shareholders, including SSM Health Care System and Neillsville Clinic, S.C.
- In the early 1990s, HMO-W pursued a merger/joint venture with United Wisconsin Services after rejecting an alternative supported by SSM.
- HMO-W retained Valuation Research Corporation to value the company for the merger vote; the report valued HMO-W at approximately $16.5–18 million and was distributed with proxy materials.
- SSM and Neillsville voted against the merger but were outvoted; they exercised statutory dissenters’ rights and demanded payment for their shares.
- After the vote, HMO-W obtained a new appraisal valuing net assets at about $7.4 million and paid SSM roughly $1.5 million (including interest), which SSM disputed as too low.
- HMO-W commenced a statutory appraisal proceeding to determine the “fair value” of the dissenters’ shares as of the merger date.

## Issues

1. Whether “fair value” in a statutory appraisal permits application of a minority discount to dissenters’ shares.
2. Whether, and to what extent, alleged corporate “unfair dealing” (including use of a higher proxy valuation followed by a lower appraisal for payment) must be considered in determining fair value, and whether the corporation can be bound to the proxy valuation.

## Decision

- The Wisconsin Supreme Court affirmed the court of appeals.
- Minority discounts may not be applied when determining the fair value of dissenters’ shares in an appraisal proceeding.
- A court may consider evidence of unfair dealing only as it affects the value of the dissenter’s shares.
- The circuit court’s net-asset valuation (adopting HMO-W’s expert) was upheld; HMO-W was not required to use the earlier proxy valuation.

## Legal Principles

- “Fair value” in a dissenter appraisal is the shareholder’s proportionate interest in the corporation valued as a whole as a going concern, allocated among shares without discounts for lack of control.
- Applying a minority discount in a merger-related appraisal is inconsistent with the statutory purpose of protecting minority shareholders from being forced to accept less than their proportionate share.
- Evidence of unfair dealing is relevant in an appraisal only to the extent it bears on valuation; the appraisal proceeding need not convert into a general fiduciary-duty trial.
- A corporation is not automatically bound to a valuation used in proxy materials; the trier of fact weighs competent valuation evidence to determine fair value as of the relevant date.

## Conclusion

The court held that dissenting shareholders must receive their undiluted proportionate share of corporate value in an appraisal proceeding, barring minority discounts, while allowing consideration of alleged unfair dealing only insofar as it affects the valuation determination.


HMO-W Inc. v. SSM Health Care Sys., 2000 WI 46, 234 Wis. 2d 707, 611 N.W.2d 250 (Wis. 2000)