Tri-Continental Corp. v. Battye
Supreme Court of Delaware, 1950.
74 A.2d 71.
FACTS
-General merged into parent company, P.
-Certain common stockholders of General objected to the terms of merger and registered their objection.
-Shareholders were determined to be entitled to appraisal.
-Appraisal set General stock at $4.62/share, P appealed.
RULES
Upon the merger of a corporation, stockholders who object to the merger and who fulfill the statutory requirements to register their objection shall be paid the value of their stock on the date of the merger, exclusive of any element of value arising from the expectation or accomplishment of the merger.
ANALYSIS
-Court looks to determine the meaning of “value”.
-Stockholder is entitled to be paid for that which has been taken from him, his proportionate interest in a going concern.
-This is the true or intrinsic value of his stock which has been taken by the merger.
-Must take into consideration all factors and elements which reasonably might enter into the fixing of value. (must consider all elements)
1) market value, 2) asset value, 3) dividends, 4) earning prospects, 5) nature of the enterprise and any other facts which were known or could be ascertained as of the date of the merger.
General = regulated CLOSED-END investment company with leverage, was engaged in investing in the stock market generally seeking to acquire and hold a cross section of the market.
-Common stockholder of a closed-end company has no right at any time to demand of the company his proportionate share of the company’s assets.
-A regulated investment company is required to distribute all of its income from dividends and interest to its stockholders but, in doing so, pays no tax on amounts distributed.
Leverage
-Since debentures and preferred stock of General were a fixed liability, the same amount of assets at all times was required to be set off against them.
-If stock market declines: decreases the value of General’s assets, all decrease falls upon the common stock.
-If stock market rises: increases value of General’s assets, all increase accrued to benefit of common stock.
-When market price of common stock moves into certain price range in relation to net asset value, upward leverage disappears and stock sells on market at lower price than net asset value.
-Difference between net asset value and market value of common stock in closed-end investment company is known as discount.
Here, discount was brought into play.
Net Asset Value - a mathematical figure representing the total value of the assets of General less the prior claims. (A liquidating value)
-Could be determined as of any date by computing total market value of securities in portfolio, adding to that the sum of cash in company’s possession, deducting total of outstanding liabilities, debentures and preferred stock, and dividing final result by number of common shares outstanding.
[Court refuses to fix value of stock to net asset value here]
-A theoretical liquidating value to which the share would be entitled upon the company going out of business.
-Common stockholder can not withdraw his proportionate share of closed-end investment co. as long as it is a going concern.
-The dissenting stockholder is entitled to receive the intrinsic value of his share in a going concern.
→ This means he is entitled to receive that sum which represents the amount he would have received as a stockholder in one way or another as long as the company continued in business.
→ The only way in which a common stockholder of a going closed-end co. with leverage can obtain the value of his stock is by the same of it on the market.
Supreme Court of Delaware, 1950.
74 A.2d 71.
FACTS
-General merged into parent company, P.
-Certain common stockholders of General objected to the terms of merger and registered their objection.
-Shareholders were determined to be entitled to appraisal.
-Appraisal set General stock at $4.62/share, P appealed.
RULES
Upon the merger of a corporation, stockholders who object to the merger and who fulfill the statutory requirements to register their objection shall be paid the value of their stock on the date of the merger, exclusive of any element of value arising from the expectation or accomplishment of the merger.
ANALYSIS
-Court looks to determine the meaning of “value”.
-Stockholder is entitled to be paid for that which has been taken from him, his proportionate interest in a going concern.
-This is the true or intrinsic value of his stock which has been taken by the merger.
-Must take into consideration all factors and elements which reasonably might enter into the fixing of value. (must consider all elements)
1) market value, 2) asset value, 3) dividends, 4) earning prospects, 5) nature of the enterprise and any other facts which were known or could be ascertained as of the date of the merger.
General = regulated CLOSED-END investment company with leverage, was engaged in investing in the stock market generally seeking to acquire and hold a cross section of the market.
-Common stockholder of a closed-end company has no right at any time to demand of the company his proportionate share of the company’s assets.
-A regulated investment company is required to distribute all of its income from dividends and interest to its stockholders but, in doing so, pays no tax on amounts distributed.
Leverage
-Since debentures and preferred stock of General were a fixed liability, the same amount of assets at all times was required to be set off against them.
-If stock market declines: decreases the value of General’s assets, all decrease falls upon the common stock.
-If stock market rises: increases value of General’s assets, all increase accrued to benefit of common stock.
-When market price of common stock moves into certain price range in relation to net asset value, upward leverage disappears and stock sells on market at lower price than net asset value.
-Difference between net asset value and market value of common stock in closed-end investment company is known as discount.
Here, discount was brought into play.
Net Asset Value - a mathematical figure representing the total value of the assets of General less the prior claims. (A liquidating value)
-Could be determined as of any date by computing total market value of securities in portfolio, adding to that the sum of cash in company’s possession, deducting total of outstanding liabilities, debentures and preferred stock, and dividing final result by number of common shares outstanding.
[Court refuses to fix value of stock to net asset value here]
-A theoretical liquidating value to which the share would be entitled upon the company going out of business.
-Common stockholder can not withdraw his proportionate share of closed-end investment co. as long as it is a going concern.
-The dissenting stockholder is entitled to receive the intrinsic value of his share in a going concern.
→ This means he is entitled to receive that sum which represents the amount he would have received as a stockholder in one way or another as long as the company continued in business.
→ The only way in which a common stockholder of a going closed-end co. with leverage can obtain the value of his stock is by the same of it on the market.
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