## Facts

- Southwest Bancorp, Inc. owned more than 91% of M.G. Bancorporation, Inc. (MGB), a Delaware bank holding company with controlling interests in two banking subsidiaries.
- On November 17, 1993, Southwest completed a short-form merger under 8 Del. C. § 253, cashing out MGB’s minority stockholders for $41 per share.
- Dissenting minority stockholders filed an appraisal petition under 8 Del. C. § 262 seeking a judicial determination of the “fair value” of their shares as of the merger date.
- In a separate, earlier fiduciary-duty action, the Court of Chancery found the parent’s original appraisal breached duties by valuing minority shares using a minority-discounted “fair market value” rather than a pro rata share of the company as a whole.
- At the appraisal trial, petitioners’ expert valued MGB at $85 per share using multiple methods, with primary reliance on comparable acquisition transactions; respondents’ expert valued MGB at about $42 per share using a DCF and a “capital-markets” approach.
- The court required respondents to explain why their new approaches produced a value nearly identical to the earlier $41 figure and found the capital-markets approach effectively embedded a minority discount.

## Issues

1. What was the statutory “fair value” of MGB’s common stock as of the merger date under 8 Del. C. § 262?
2. Which valuation methodologies were reliable and legally permissible for determining going-concern value exclusive of merger-related value?
3. Whether any portion of respondents’ valuation analysis improperly imposed a minority discount, contrary to appraisal standards.
4. What interest rate and form (including compounding) should apply to the appraisal award under § 262(h)?

## Decision

- The Court of Chancery determined fair value at $85 per share as of November 17, 1993.
- The court rejected respondents’ capital-markets analysis as substantively reintroducing an impermissible minority discount.
- The court gave principal weight to petitioners’ comparable acquisitions analysis, treating acquisition multiples as reflecting going-concern value without adding a separate control premium on top of those multiples.
- The court awarded 8% interest compounded monthly under § 262(h).
- On appeal, the Delaware Supreme Court affirmed the $85 per share fair-value determination but remanded for further explanation and reconsideration of the monthly compounding component of the interest award.

## Legal Principles

- Appraisal “fair value” under 8 Del. C. § 262 is the stockholders’ pro rata share of the corporation’s value as a going concern, excluding any value arising from the accomplishment or expectation of the merger.
- Minority discounts are improper in Delaware appraisal; courts may reject valuation techniques that, in substance, embed such discounts even if presented under different labels.
- The Court of Chancery has discretion to select, weigh, and adjust valuation methodologies (including DCF and comparable transactions) and is not required to adopt any party’s model or to prefer DCF in all cases.
- Comparable acquisition transactions may be used to estimate going-concern value when sufficiently comparable and applied in a manner that avoids importing value attributable solely to the challenged merger.
- Under § 262(h), the Court of Chancery has discretion to set an equitable interest award, including compound interest, but must provide a reasoned basis for the selected rate and compounding approach.

## Conclusion

The Court of Chancery more than doubled the merger consideration in a short-form cash-out by valuing the company as a going concern on a pro rata basis and rejecting methods that effectively imposed a minority discount; the Delaware Supreme Court upheld the $85 per share valuation while requiring a fuller justification for monthly compounding of interest.


Le Beau v. M.G. Bancorporation, Inc., 1998 WL 44993 (Del. Ch. Jan. 22, 1998)