This case covers a recent court ruling by the Delaware Chancery Court on the value of a privately held business. In 1997 the majority shareholders acquired a minority shareholder’s stock at a price the minority shareholder felt was far too low. The minority shareholder sued for relief, and in 2010 the Delaware Chancery Court ruled primarily in favor of the minority shareholder. The case discusses in detail the three primary valuation methods used to value a company (the income approach, or discounted cash flow; the market approach, or market multiples, and; the asset approach, or the sum of what individual assets could be sold for in a timely liquidation).
The case covers a wide range of valuation methods by three valuation experts. The court completely rejected all but one method. That method is based on the Morning Star/Ibbotson discount rates by firm size. The case provides enough information that students can discuss the validity of each valuation method and the validity of the judge’s decisions.