## Facts

- 3M Company acquired Cogent, Inc. (later 3M Cogent, Inc.), a Delaware biometric-technology company, in a cash-out merger for $10.50 per share.
- Certain investment-fund stockholders acquired shares after the merger announcement, perfected appraisal rights, and sought a statutory appraisal under 8 Del. C. § 262.
- Petitioners held about 5.8 million shares and demanded a judicial determination of “fair value” as of the merger date.
- Petitioners’ expert valued the shares at $16.26 per share using a discounted cash flow (DCF) model based on management projections.
- Respondent’s expert valued the shares at $10.12 per share using equal weighting of DCF, comparable companies, and comparable transactions approaches.
- The action proceeded to trial, and the court issued a post-trial opinion determining fair value and the weight to give competing valuation methods.

## Issues

1. What was the statutory “fair value” of Cogent’s common stock as of the merger date under 8 Del. C. § 262, excluding merger-specific value?
2. Which valuation methodologies and expert inputs were reliable on this record, including DCF, comparable companies, and comparable transactions analyses?
3. Whether, and to what extent, the merger price should be used as evidence of fair value where the respondent does not advocate it as a valuation indicator.

## Decision

- The court determined Cogent’s fair value as of the merger date to be approximately $963.4 million, or $10.87 per share.
- The court relied primarily on a DCF analysis grounded in management projections, with court-selected adjustments to disputed inputs.
- The court assigned no weight to respondent’s comparable companies analysis because the proposed peers were not sufficiently comparable in size, business, and profitability.
- The court assigned no weight to respondent’s comparable transactions analysis because the dataset was too sparse and the multiples too dispersed to support reliable inferences.
- The court did not use merger price as a valuation benchmark in determining fair value and entered judgment at $10.87 per share plus statutory interest.

## Legal Principles

- In a § 262 appraisal, “fair value” measures the corporation as a going concern as of the merger date and excludes value arising from the merger itself (including synergies), while considering all relevant factors.
- The Court of Chancery has discretion to use valuation techniques accepted in the financial community and may adopt, modify, or construct valuation models based on the trial record.
- Comparable companies analysis requires sufficiently comparable firms; meaningful differences in business, scale, and profitability can justify rejecting the approach entirely.
- Comparable transactions analysis may be rejected where the sample is too small or the multiples are so dispersed that no reliable central tendency can be drawn.
- Management projections prepared for transactional purposes may be used in DCF valuation absent persuasive evidence of manipulation, but courts will scrutinize inputs such as discount rate, growth assumptions, and terminal value.

## Conclusion

The Court of Chancery set statutory fair value at $10.87 per share, relying on a DCF analysis rooted in management projections while rejecting market-based comparable companies and transactions approaches as unreliable on the record and declining to treat the merger price as determinative.


Merion Cap., L.P. v. 3M Cogent, Inc., 2013 WL 3793896 (Del. Ch. July 8, 2013)