## Facts

- Southwest Bancorp, Inc., owning over 91% of M.G. Bancorporation, Inc. (MGB), completed a short-form cash-out merger under 8 Del. C. § 253 on November 17, 1993.
- Minority shareholders were cashed out for $41 per share and demanded appraisal under 8 Del. C. § 262.
- MGB held controlling interests in two subsidiary banks, making control value of those holdings relevant to enterprise valuation.
- Petitioners’ expert valued MGB at $85 per share using a combination of discounted cash flow (including a control premium for subsidiary control), comparable public companies, and comparable acquisitions.
- Respondents’ expert valued MGB at about $42 per share using discounted cash flow and a capital-markets approach that did not reflect a control premium for subsidiary control.
- The Court of Chancery found respondents’ capital-markets approach effectively embedded an impermissible minority discount and rejected respondents’ valuation.
- After trial, the Court of Chancery determined fair value at $85 per share and awarded 8% interest compounded monthly from the merger date.

## Issues

1. Whether the Court of Chancery improperly shifted the burden of proof and erred by accepting petitioners’ comparative acquisitions analysis.
2. Whether rejecting respondents’ valuation methods was inconsistent with the court’s duty under § 262 to independently determine fair value.
3. Whether fair value under § 262 may include a control premium tied to controlled subsidiaries and must exclude minority discounts in a cash-out merger.
4. Whether awarding 8% interest compounded monthly was an abuse of discretion absent an adequate explanation.

## Decision

- The Delaware Supreme Court affirmed the $85 per share fair value determination.
- The Court held the Court of Chancery acted within its discretion in weighing expert testimony and selecting among generally accepted valuation methods.
- The Court reaffirmed that minority discounts are not permitted in a § 262 appraisal for cashed-out minority shares and approved accounting for control value in subsidiary holdings.
- The Court remanded the interest award for reconsideration and a clearer articulation of the basis for compounding at 8% monthly.

## Legal Principles

- In a § 262 appraisal following a cash-out merger, “fair value” is the stockholder’s proportionate interest in the corporation as a going concern, not a discounted minority-block value.
- Minority discounts are improper in statutory appraisal when the transaction eliminates minority stockholders.
- Appraisal courts may consider multiple generally accepted valuation methodologies (including DCF, comparable companies, and comparable transactions) and may accept or reject components based on record-supported credibility assessments.
- When the subject company owns controlling interests in subsidiaries, fair value may reflect the economic value of control over those subsidiaries, including an appropriate control premium.
- Under § 262, the Court of Chancery has discretion to set the interest rate and decide between simple and compound interest, but must provide a reasoned basis for its choice.

## Conclusion

The Delaware Supreme Court upheld an appraisal award valuing MGB at $85 per share, rejecting any minority discount and permitting recognition of control value arising from MGB’s controlled subsidiaries, while requiring further explanation for imposing 8% interest compounded monthly.


M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513 (Del. 1999)