JACQUES COE & CO. et al.
[31 Del.Ch. 369] Robert C. Barab, Wilmington, for petitioners and for stockholder-exceptants.
[31 Del.Ch. 370] Robert H. Richards, Jr., of Richards, Layton & Finger, Wilmington, for defendant.
SEITZ, Vice Chancellor.
An appraiser acting under Section 61 of our General Corporation Law, Rev.Code 1935, § 2093, appraised the preferred and common stock of stockholders who chose not to accept the terms of a merger. This is the decision on exceptions to the appraiser's report.
The defendant corporation's preferred stock contract provided for a liquidation price of $110 per share plus accrued dividends. They amounted to $29.60 as of February 21, 1949. The call price was of an equal aggregate amount. The contract had certain provisions for retiring the preferred stock, but the corporation was in substantial default thereon. So long as the dividend arrearages exceeded $6.50 per share, the preferred stockholders had exclusive voting power.
In determining net asset value for the preferred, the appraiser decided that in no event should it exceed $139.60--the liquidation value plus accrued dividends. The appraiser determined the net asset value of the common stock to be $32.54. This amount was based on the acceptance of an expert witness' net asset evaluation of $26.80 per share less $1.12 per share which represented an amortization item which the appraiser concluded the expert witness had improperly excluded. The appraiser then added $6.86 per share representing good will.
The appraiser decided that net asset value should be weighted at 40% for the preferred stock and 20% for the common. In stating his reasoning in connection with the weighting factor, the appraiser stated that the preferred had been weighted much more heavily than the common because of the substantial advantages which the preferred possessed over the common under the charter provision.
The appraiser decided that a fair market value, uninfluenced by the merger, existed on February 21, 1949--the [31 Del.Ch. 371] date of merger. I find no error in this conclusion. The market price for the preferred on that date was $113 per share, while the common was $12.13 per share.
The appraiser weighted the market value of the preferred stock at 30% and the common at 45%. In explaining the weight given to the market price the appraiser stated that the common was entitled to more weight than the preferred because of the greater market activity of the common stock. He also pointed out that substantial weight was given the market value of the common because that price represented the considered judgment of numerous investors and speculators--backed up by their own savings. This is, of course, certainly true to a degree.
Finally, the appraiser capitalized the earnings and dividends by taking the average earnings for the preferred and common for a 5-year period. Multiplying these yearly earnings by the factor of 5, the appraiser arrived at a figure of $149 per share as the earnings-dividends value for the preferred. The appraiser pointed out that arrearages were not included under this element because he had already taken them into account under net asset value. Capitalized for the same period, the per share value of the common stock based on earnings and dividends amounted to $16.90.
The appraiser weighted earnings and dividends at 30% on the preferred and 35% on the common. The appraiser stated that this element was not weighted more heavily as to the common stock because of the failure to pay dividends thereon. The earning prospects of the company did appear to be good.
In order to resolve some of the questions posed by the various exceptions, it is necessary to consider, in a general way, the appraiser's approach to his duties under the statute.
Conceivably, an appraiser in weighting various elements of value and arriving at an appraised value might not articulate his mental processes. However, I believe an appraiser [31 Del.Ch. 372] should state the monetary value which he has ascribed to the more substantial elements of value considered and the weight he has given each such element in arriving at his appraised value. I shall not pause to discuss the many infirmities involved in any evaluation process. The important thing is that the appraiser must, under the statute, arrive at a dollar and cents' appraisal. Consequently, the appraiser should state the value of the elements given independent weight and the weight ...